Investment Advisory Services-6086-Award/Ordinance/Pricings:\Iegahour documeots\ordinances\I6\investment advisory services ordinance-isam.doc
ORDINANCE NO. 2016-064
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF DENTON, TEXAS,
AUTHORIZING THE CITY MANAGER OR HIS DESIGNEE TO EXECUTE AN
INVESTMENT ADVISORY SERVICES CONTRACT WITH FIRST SOUTHWEST ASSET
MANAGEMENT, INC. FOR INVESTMENT ADVISORY SERVICES FOR AN AMOUNT
NOT TO EXCEED $52,000; AND PROVIDING AN EFFECTIVE DATE.
WHEREAS, Section 2256.003 of the Texas Government Code permits cities to contract
with an investment management firm in the exercise of their power to purchase, sell and invest
their funds in investments authorized by the Public Funds Investment Act; and
WHEREAS, on June 1, 2008, the City of Denton ("City") and First Southwest Asset
Management, Inc. ("FSAM") entered into an Investment Advisory Services Contract whereby
FSAM was designated as the investment advisor for the City beginning June 1, 2008 and ending
May 31, 2010, with a possible two-year extension of the Contract not to extend beyond May 31,
2012; and
WHEREAS, the City and FSAM initiated a two-year contract which began June 1, 2012
and ended May 31, 2014; and
WHEREAS, the City and FSAM initiated a two-year contract which began June 1, 2014
and ending May 31, 2016; and
WHEREAS, the City and FSAM desire to initiate a two-year contract which will begin
June 1, 2016 and ending May 31, 2018; NOW, THEREFORE,
THE COUNCIL OF THE CITY OF DENTON HEREBY ORDAINS:
SECTION 1. The City Manager or his designee is authorized to execute a two-year
contract between the City and FSAM for investment advisory services for an amount not to
exceed $52,000, a copy of which is attached hereto and made a part hereof for all purposes.
SECTION 2. The following officials: Bryan Langley, Assistant City Manager; Charles
Springer, Director of Finance; Antonio Puente, Jr., Assistant Director of Finance; and Caroline
Finley, Treasury Administrator are hereby authorized to transact business with the above listed
institution regarding investments for the City.
SECTION 3. The City Manager is authorized to make the expenditure of funds and fees
and take the actions as required by the Investment Advisory Services Contract as amended.
SECTION 4. This Ordinance is enacted pursuant to and in accordance with Section
2256.003 of the Texas Government Code.
s:Veg Aour documentslordinances116\investment advisory services ordinanc fsam.doc
SECTION 5. This Ordinance shall become effective immediately upon its passage and
approval.
PASSED AND APPROVED this the 1 day of 2 16.
CHRIS WATTS, MAYOR
ATTEST:
JENNIFER WALTERS, CITY SECRETARY
Page 2
AGREEMENT
FOR
INVESTMENT ADVISORY SERVICES
BY AND BETWEEN
THE CITY OF DENTON, TEXAS
AND
FIRST SOUTHWEST ASSET MANAGEMENT, LLC
This Investment Advisory Agreement (the "Agreement") is made by and between the City of Denton, Texas (the
"City') and First Southwest Asset Management, LLC. ("FSAM"). This agreement shall be effective as of the date of
its acceptance by the City as indicated on the signature page hereof. The term of this agreement shall commence on June
1, 2016 and conclude on May 31, 2018. This agreement may be extended for additional two (2) year periods upon
approval by the City.
I. Terms and Conditions
This Agreement sets forth the tetras and conditions governing the relationship of the City to FSAM with
respect to securities and money which the City in its discretion may make available for investment or
reinvestment (the "Funds"). This Agreement shall apply to these investable funds during the period in which
this Agreement shall be in effect.
II. Investment Advisory Services
A. Services. With respect to the Funds, FSAM will endeavor to provide investment advisory services
and cause to be executed such investments as determined in accordance with Section ILB below.
FSAM agrees to provide professional services and its facilities and to direct and coordinate all programs
of investing as may be considered and authorized by the City and to assume and pay those expenses
incurred by FSAM in connection with the execution of investment decisions. Specifically, FSAM
agrees to perform the following duties:
L... Review and recommend changes to the City's investment policy annually, consistent with the
provisions of Chapter2256 and 2257 of the Texas Government Code and other applicable
federal, state and local laws;
Advise me Uny on current matxct s------ --.
information through direct conversation, e-mail and other acceptable means
3. Advise in the investment of the available funds and, as directed by the City, cause the
transactions to be executed on a fully documented and competitive basis;
4. Maintain and providean authorized broker/dealer list from which securities will be competitively
bid;
5. Assist in the security clearance process;
6. Promptly send (or cause to be sent) trade confirmations 4o the City;
7. Verify collateral pricing as needed;
8. Attend quarterly meetings with City staff to discuss economic trends, interestrates and
investment strategies; and,
9. Provide staff with research, analysis and market -related projects as requested.
B. Scope of Investment Decisions: In performing the services listed in Section II.A above, FSAM
shall not have discretionary authority and, accordingly, shall obtain approval from the City for the
investment of any City Funds. The City hereby represents and acknowledges that its written
investment policy and investment strategy includes its investment objectives and all portfolio
limitations and restrictions, including, without limitation, acceptable levels of investment risk. The
City also agrees to notify FSAM in writing ten business days in advance of the implementation of any
changes in the City's investment objectives, investment limitations, and/or financial condition. The
City will give FSAM immediate verbal notice and written notice within five days of receipt of any
trade confirmations should the City believe any investment in the Funds violates the City's
investment objectives or limitations.
C. Standard of Care. In the administration of its duties, FSAM shall exercise the judgment and care,
under prevailing circumstances, that a prudent person would exercise in the management of the
person's own affairs, not for speculation, but for investment, considering, with regard to the entire
Funds rather than any particular investment or security, the probable safety of capital and the
probable income to be derived.
D. Settlement of Securities. The purchase of individual securities shall be executed "delivery versus
payment" (DVP) through the City's safekeeping agent. By so doing; City funds will be released when
and. if the City has received, through the safekeeping agent; the designated securities purchased.
E. Return on the Portfolio. The City expressly affirms and acknowledges that FSAM has not
promised or guaranteed any stated or specified return on, or performance of, the City's Funds, and
FSAM is not responsible for any market losses arising with respect to the Funds.
III. Representations
A. FSAM represents that it is registered as an investment advisor under the Investment Advisers Act of
1940 (the "Advisers Act") and is authorized and empowered to enter into this Agreement.
B. The City represents and confirms that (1) the City has full power and authority to enter into this
- Agreement; (2) the terms hereof do not violate any obligation by which the City is bound, whether
arising by contract, operation of law, or otherwise; and (3) this Agreement has been duly authorized
by and will be binding on the City according to its terms.
C. The City shall allow FSAM to rely upon all information regarding schedules orotherinformation
pertaining to the Funds as provided to it by the City as being true and accurate. FSAM'shall have no
responsibility to verify, through audit or investigation, the accuracy or completeness of such information
and FSAM will not undertake to authenticate any such Information and FSAM will not undertake to
authenticate any such information.
D. The City recognizes that there may be loss or depreciation of the current liquidation, immediate and
ongoing value of any investment due to the fluctuation of market values. The City represents that no
party to this Agreement has made any guarantee; either oral or written, that the City's investment
objectives will be achieved. FSAM shall not be liable for any error in judgment and/or for any
investment losses in the Funds in the absence of willful malfeasance, gross negligence, or violation of
applicable law. Nothing in this Agreement shall constitute a waiver or limitation of any rights that the
City may have under applicable state or federal law including without limitation, the state and federal
securities Iaws.
E. City represents and acknowledges that City has reviewed and understands the risk factors and fees
associated with the Funds.
i-
IV. Fees and Costs of FSAM
As consideration for the services provided by FSAM under this Agreement, FSAM will be entitled to a fee
(the "Advisor Fee's determined in accordance with the schedule set forth in the fee schedule ("Schedule
A"), a copy of which is attached hereto, is incorporated herein for all purposes and is being delivered to the
City simultaneously with the execution, and as an integral part, of this Agreement. The obligation of FSAM
to pay or incur expenses shall not include any costs incident to litigation; mandamus action, regulatory'
investigation, test case or other similar legal actions. The Advisor Fee will be payable quarterly in arrears. In
the event this Agreement is terminated prior to the end of a quarter, the Advisor Fee shall be prorated and
paid within 30 days of termination.
V. Reporting and Account Statements
FSAM will deliver or cause to be delivered to the City confirmation of investment and monthly statements
for the Funds invested as set forth in this Agreement. The monthly statement will reflect all investments,
including date of investment, purchase price, current price, date of maturity, profit or loss and cash balances.
FSAM will also provide the City with an annual valuation of the City's Funds and any additional statements
that may be required by applicable law, including the reporting provisions of the Public Funds Investment
Act, or other applicable state law, with respect to transactions effected under this Agreement.
VI. Other Services
The investment.. advisory services provided hereunder by FSAM to the City are exclusive of any other
services that FSAM may provide to. the City.
VII. Execution of Investment Transactions
A: Affiliated Broker. FSAM is affiliated through common ownership and control with Hilltop
Securities Inc. ("HTS"), a registered broker/dealer with the Financial Industry Regulatory Authority
("FINRA"), the U.S. Securities and Exchange Commission ("SEC"), and various state and territorial
regulatory authorities. The City hereby authorizes FSAM to effect transactions for its Funds by
execution through HTS. Wheretransactions are effected through HTS, HTS may act on an agency or
principal basis to the extent permitted by law. Pursuant to Rule 206(3) of the Advisers Act, FSAM
will obtain the City's consent on each investment transaction to allow HTS to act as a principal in
acquiring a security to facilitate a trade.
effected independently unless FSAM decides to purchase or sell the same securities for several o t
ts
clients at approximately the same time. FSAM may (but is not obligated to) combine or "batch" such
orders to obtain best execution. Under this procedure, transactions will be averaged as to price and
will be allocated among FSAM's clients included in the "batch" group in proportion to the purchase
and sale orders placed for each client in batch transactions.
VIII. Selection of Brokers
The City agrees that when FSAM effects or places orders for the execution of transactions for the Funds
(other than situations where the City specifically instructs otherwise in writing), FSAM may allocatesuch
transactions to such brokers and dealers for execution on such markets, at such prices as in the judgment of
FSAM will be in the best interests of the City, taking into consideration, in the selection of such brokers and
dealers, the available prices and rates of brokerage commissions and other relevant factors, without having to
demonstrate that such factors are of a direct benefit to the City. Subject to the foregoing, FSAM will arrange
for the execution of securities transactions for City Funds through brokers or dealers that FSAM reasonably
believeswill provide best execution.
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IX. Non -Exclusive Relationship
The City hereby acknowledges that FSAM's services under this Agreement are nonexclusive, and that FSAM
shall be free to render the same or similar services to other clients. The City further acknowledges that
FSAM's advice is specific to each individual City's investment objectives, limitations and financial
condition. Therefore FSAM, in the performance of its investment advisory duties, may give advice to, and
take action on behalf of, other clients that may differ from the advice given, or the timing and nature of the
action taken, with respect to the City's Funds. Nothing in this Agreement shall be deemed to impose upon
FSAM any obligation to purchase or sell, or to recommend for purchase or sale for the City's Funds, any
security that FSAM or its affiliates may purchase or sell, for their own account or for the accounts of any
other client if, at the sole discretion of FSAM, it is for any reason undesirable or impractical to take such
action or make such recommendation for the City's Funds. The City also acknowledges that FSAM has
varying fee structures and arrangements with other clients and may charge other clients different fees, which
may be higher or lower than the fees charged with respect to the City's Funds for similar services.
X. Instructions from the City
FSAM may rely on all instructions (whether oral or written) given by the City or its agents that. FSAM
believes to be genuine. Instructions may be given to FSAM by any officer or agent authorized by (1) the
investment policy; (2) a duly executed "Authorization to Trade Public Funds" form provided by FSAM; or
(3) a resolution of the governing body of the City. FSAM may rely on such authorization until written notice
to the contrary is delivered to FSAM by the City; and if the City does not deliver appropriate authorizing
documentation, FSAM may accept instructions from any person reasonably believed by FSAM to be an
officer of the City.
XI. Transactions Subject to Industry Regulations and Standards
All transactions shall be subject to the regulations of all applicable government authorities and self-
regulatory agencies including, but not limited to, the constitutions and rules of the clearing agent, exchange,
or market where executed. The City understands that FSAM is registered as an investment advisor under the
Advisers Act, and as such is obligated to comply with all applicable laws and regulations, including those of
the SEC and other regulatory and self-regulatory agencies, and agrees that FSAM shall not be liable to the
City as a result of any action taken by FSAM to comply with any ruling, interpretation, or directive of such
organizations. Further, the City understands and agrees that FSAM will not accept any instructions from the
City which would require a violation of any such rules or regulations.
Neither FSAM nor the City may assign any of its rights, authorizations, or obligations under this Agreement
without the prior written consent of the other party.
XIII. Term and City's Right of Cancellation
This Agreement shall become effective as of the date hereof and continue for a period of two (2) years. This
Agreement may be extended for additional two (2) year periods upon approvalby the City. Either party may
terminate this Agreement upon delivering to the other party thirty (30) calendar days' prior written notice. In
addition, the City may terminate this Agreement without penalty for a period of five (5) business days after
the date it is executed by the City. The City may exercise this right by giving written notice to FSAM within
the required time period. In the event of termination, it is understood and agreed that only the amounts due to
FSAM for services provided and expenses incurred to and including the date of termination, plus those costs and
expenses incurred or sustained as a result of the termination, will be due and payable. No penalty will be
assessed for termination of this Agreement. In addition, the parties hereto agree that upon termination of this
Agreement FSAM shall have no continuing obligation to the City regarding the investment of funds or
performing any other services contemplated herein.
e4�
XIV. Custodial Arrangements
Custody of the Funds' invested assets will be maintained with a custodian selected by the City and identified
to FSAM (the "Custodian"). FSAM will not have custody of any assets in the Funds. The City will be solely
responsible for paying all fees or charges of the Custodian. The City authorizes FSAM to give Custodian
instructions for the purchase, sale, conversion, redemption, exchange or retention of any security, cash or
cash equivalent or other investment for the Funds.
XV. Miscellaneous
A. Notices to the City. All written communication to the City shall be sent to the City's address set forth
on the signature page hereof or as directed in writing to FSAM by the City. Any notice, statement, or
other communication mailed to the City by FSAM in accordance with this section will be deemed to be
given to the City personally on the date it so mailed, whether or not it is actually received by the City.
B. Notices to FSAM. Any notice, statement, or other communication from the City to FSAM under this
Agreement must be in written form and will be deemed to be given to FSAM upon actual receipt thereof
by FSAM whether such notice was mailed, personally delivered, or telecopied to:
FirstSouthwest Asset Management, LLC
300 West Sixth Street, Suite 1940
Austin, Texas 78701
Attention: Mr. Scott McIntyre
Fax Number: (512) 481-2020
C. Confidential Relationship. All of the information and advice furnished by either party to the other
under this Agreement, including their respective agents and employees, will be treated as strictly
confidential by each party and will not be disclosed to third parties under any circumstances except as
required by law.
D. Limitations of Liability. Federal and state securities laws impose liabilities under certain circumstances
on persons who do not act in good faith and, therefore, nothing in this Agreement shall in any way
constitute a waiver or limitation of any rights that the City may have under federal and state securities
laws.
E. Indemnity. The City will indemnify FSAM for any loss, liability, or expense
respect to the Funds or the services rendered by FSAM under this Agreement, except in cases of gross
negligence or willful misconduct by FSAM in managing the City's Funds.
F. Inconsistent Provisions; Agreements. If any provisions of this Agreement should become or be found
to be inconsistent with laws, rules, or regulations of any government or regulatory body having
jurisdiction over. the subject matter herein, such provisions shall be deemed modified or rescinded in
accordance with any such laws, rules, or regulations. To the extent that the provisions of this Agreement
are inconsistent with the provisions of any account agreement or clearing agreement with FSAM or its
clearing agent, as the case may be, then FSAM shall provide notice to the City to resolve the conflict.
G. Invalid Provisions. If any provision or condition of this Agreement shall be held to be invalid or
unenforceable by any Court, or regulatory or self-regulatory agency or body, such invalidity or
unenforceability shall attach only to such provision or condition. The validity of the remaining
provisions and conditions shall not be affected, and this Agreement shall be carried out as if any such
invalid or unenforceable provision or condition were not contained herein.
H. Waiver of Terms. FSAM's failure to insist at any time upon strict compliance with any terms of this
Agreement shall not constitute a waiver of any of FSAM's rights as described herein.
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1. Governing Law. This Agreement will be governed by and construed in accordance with the laws of the
State of Texas, without regard to its principles of conflicts of laws.
J. Extraordinary Events. Neither FSAM nor any of its officers, directors, shareholders, affiliates, general
partners, employees, agents, or trustees shall be liable for losses caused directly or indirectly by
government restrictions, securities exchange or market actions, suspensions of trading, wars, strikes,
delays in the transmission of orders due to breakdown or failure of transmission or communication
facilities, or any other causes beyond FSAM's reasonable control or anticipation.
K. Written Disclosure Statement. Simultaneously with the execution of this Agreement, FSAM has
delivered to the City Part II of its Form ADV as fried with the SEC, or a similar disclosure document, as
its brochure pursuant to Rule 204.3 of the Advisers Act. The City's execution of this Agreement shall be
deemed acknowledgment of receipt thereof.
L. Verification of Information. The City represents and warrants to FSAM that all information furnished
to FSAM in connection with the Agreement (and all documents supplied by the City in this regard,
including financial statements) are true, complete, and correct. FSAM is entitled to rely on this
information until FSAM receives written notice of any change, which the City agrees to famish promptly
should any material changes occur.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK. THE NEXT PAGE IS A
SIGNATURE PAGE.]
By signing this Agreement, the undersigned City official acknowledges receipt of a copy of
this Agreement, including Schedule A.
CITY OF DENTON, TEXAS
215 E McKinney
Denton, TX 76201
Signatttre of Officer Date
aeol _ C kd APPROVED AS TO FORM:
(Name) CITY ATTORNEY
CITY OF DENTON, TEXAS
(Title)'
FIRST SOUTHWEST ASSET MANAGEMENT, LLC
Iiignatare of Officer Date /
Scott McIntyre
Managing Director
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SCHEDULE A
FEE SCHEDULE AND EXPENSE ITEMS
In consideration for the services rendered -by FitstSouthwest Asset Management, LLC ("FSAM") in connection with
the investment of the Portfolio for the City, it is understood and agreed that its fee will be at fixed quarterly rate of
$6,500.
The fees due FSAM shall be due and payable 30 days following the conclusion of each calendar quarter. Said fee
includes all costs of services related to the investment services provided under this Agreement. Any other fees earned
by FSAM relating to City transactions, shall be disclosed to the City.
Fee Calculation for Investment of Bond Proceeds into Flexible Repurchase Agreements ("Flex Repos") and
Guaranteed Investment Contracts ("GIC's"): In the event that specific bond proceeds are invested by FSAM as
per instruction of the Investor into either a Flex Repo or GIC, FSAM shall be entitled to the lesser of $39,000 or 0.2
percent (0.002) of the aggregate amount reasonably expected as of the issue date to be deposited over the term of the
contract. This fully disclosed fee would be paid to FSAM by the winning bidder. -