Treasurer Flowers Announces Fee Reduction from State Investment Banks
DOVER, DE — Delaware State Treasurer Chip Flowers announced that the Delaware State Treasury and the Cash Management Policy Board (the “Board”) have reached an agreement on proposed changes to the State’s investment portfolio (the “Portfolio”). The Portfolio, which is invested by the Treasury pursuant to certain guidelines adopted by the Board, was the subject of an extensive 60-page report ordered by Treasurer Flowers and conducted by Credit Suisse Securities (USA) LLC (“Credit Suisse”) earlier this year. The report provided the Board and Treasury with a number of substantive recommendations for improving returns of the Portfolio while maintaining or reducing the current level of risk and addressing potential shortcomings in the Portfolio. The report is available in full on the Treasury’s website (treasury.delaware.gov).
Under the terms of the deal, the Treasury will be permitted to diversify the state’s assets by investing in fixed income securities that are rated no less than “A” from one of the three major credit rating agencies. Second, the Treasury will require the state’s investment managers to meet certain financial benchmarks to ensure that State funds are invested in an effective manner. Third, the Treasury will issue a Request for Proposal for new investment managers through an open and competitive process that is expected to commence in the next thirty (30) days. Finally, Credit Suisse will continue working with the Treasury (and Board) to monitor the performance of the Portfolio and propose changes as needed based upon market conditions. Though the Treasury and Board approved the deal during a special meeting earlier today, some of the proposed changes may be subject to the State’s Administrative Procedure Act, thus allowing an opportunity for public comment.
Upon announcing the terms of the deal, Delaware State Treasurer Chip Flowers said, “We believe that the action taken by the Board today was a positive step in the right direction. While some of the recommendations in the Report were not adopted by the Board, we believe the deal is beneficial to the People of the State of Delaware by addressing some of the challenges facing the Portfolio. The deal affirms the Treasury’s belief that taxpayer funds must be actively managed during these difficult economic times and allows the public to comment on the proposed changes through our open government laws. Also, the deal requires a new level of accountability for those institutions that invest State funds by evaluating their performance using key financial benchmarks.”
Treasurer Flowers also said, “Most importantly, we are very pleased that the deal requires the selection of the State’s investment managers to be undertaken through an ‘open and competitive process’. This is critical to ensuring that the State hires the best investment managers at a cost-effective rate through a fair process. The door of opportunity for those seeking to do business with the Treasury will be open, not closed.”
Separately, Treasurer Flowers announced that two of the State’s investment banks, J.P. Morgan Asset Management (”JPM”) and Schroeder Investment Management North America, Inc. (“Schroeder”), have agreed to reduce their fees charged to the State in light of the current economic climate (both investment banks are incorporated in Delaware). While the final terms of the fee reduction remain subject to contractual agreement between the Treasury and the investment banks, the State will receive the benefit of the fee reduction beginning this month. Fee reductions allow the Treasury to return additional monies to the General Assembly from the State Portfolio, thereby helping taxpayers through cost savings. Currently, the State of Delaware pays approximately $2.1 million under agreements authorized by the Board in 2008.
“I would like to commend J.P. Morgan and Schroeder’s for showing their commitment to the State of Delaware by working with the Treasury to reduce their fees to support the level of returns received under our State Portfolio. This fee reduction exemplifies the strength of the long-term relationship between the Treasury and these Delaware investment banks. The Treasury will continue to work with all of the State’s investment banks to ensure that the fees charged to the State are competitive and consistent with current market rates,” said Treasurer Flowers.
For a copy of the complete press release issued by the Delaware State Treasury, click here.
