COUNTY OF SAN MATEO

County Manager’s Office

DATE:

January 28, 2009

BOARD MEETING DATE:

February 3, 2009

SPECIAL NOTICE:

None

VOTE REQUIRED:

Majority

TO:

Honorable Board of Supervisors

FROM:

Reyna Farrales, Deputy County Manager

SUBJECT:

Agreement with Alan Biller for Investment Consulting Services

RECOMMENDATION:

Adopt a Resolution authorizing an Agreement with Alan D. Biller & Associates, Inc. from February 4, 2009 to May 29, 2009 for investment consulting services, amount not-to-exceed $95,000.

VISION ALIGNMENT:

Commitment: Responsive, effective and collaborative government.

Goal 20: Government decisions are based on careful consideration of future impact, rather than temporary relief or immediate gain.

This Agreement contributes to the goal by making improvements to the County Investment Policy and investment function in order to minimize risks, create greater diversification and improve the safety and stability of pooled funds.

BACKGROUND:

On September 15, 2008, Lehman Brothers Holdings, Inc. filed for bankruptcy in the United States Bankruptcy Court in New York. On this date, the County Investment Pool held 5.9% or approximately $155 million of its value in Lehman securities. The $155 million loss has been distributed among pool participants as of September 30, 2008, in accordance with the Investment Policy. The Board has retained the law firm of Nixon Peabody LLP in connection with the Lehman bankruptcy proceedings, has continued to pursue legislation for the recovery of funds from the Emergency Economic Stabilization Act of 2008, and has filed a lawsuit against Lehman Brothers for misleading investors about its financial health prior to filing for bankruptcy.

The Board Finance and Operations Committee, under the leadership of Supervisors Mark Church and Rich Gordon, has initiated a comprehensive process of reviewing and revising the County’s Investment Policy in order to minimize risks, create greater diversification and improve the safety and stability of pooled funds. The Committee has proposed two major revisions to the current Investment Policy, one of which is contract with a third party investment advisor to assist with making improvements to the Investment Policy and ongoing monitoring of investments.

DISCUSSION:

On November 4, 2008, the Board of Supervisors approved the issuance of a Request for Proposals (RFP) for third party investment advisors and consultants. Conducting a RFP ensures an open and competitive process in the selection of qualified firms that will provide an independent perspective with regard to events that led to the decisions to invest in and hold Lehman securities in the County Investment Pool, assist the County and pool participants in revising and incorporating best practices in the Investment Policy, and assist the Treasurer’s Office and Investment Advisory Committee (Treasury Oversight Committee) in monitoring ongoing investments.

The RFP was issued on November 7, 2008 and was sent to 20 firms whose names were provided by the Treasurer’s Office, City/County Finance Officers Group (via e-mail request), San Bernardino County, which just completed a RFP for investment advisory services, and members of the County Investment Policy Workgroup. The RFP was posted on the County website and was advertised in the San Francisco Examiner and the trade journal Investment Management Weekly.

The Selection Committee consisted of the seven members of the County Investment Policy Workgroup. Three of the members are also members of the Investment Advisory Committee that will be involved in the revision of the Investment Policy. Alan Biller and Associates, located in Menlo Park, was selected to perform the following services:

(1) Review the events and analyses that led to the decisions to invest in and hold Lehman securities in the County Investment Pool, and determine whether investments were at all times in conformance with the Investment Policy;

(2) Recommend improvements to the current Investment Policy, incorporating best practices as well as input from Investment Pool participants, County Investment Policy Workgroup and County Treasurer;

(3) Recommend improvements to the existing organization structure, oversight practices, fees and resources applied to the management of similar sized portfolios relative to industry best practices;

The Board Finance and Operations Committee approved the recommendations of the Selection Committee at its January 27 meeting. The Contractor has assured compliance with all County contract requirements, including insurance, hold harmless, non-discrimination, equal benefits, and employee jury service pay. Risk Management has reviewed and approved Contractor’s insurance, and County Counsel has reviewed and approved the agreement.

FISCAL IMPACT:

Term of the contract is February 4, 2009 to May 29, 2009. Funds for this one-time engagement will come from existing appropriations within the County General Fund.