State Treasury Seeks Investment Banks to Manage State Portfolio
DOVER, DE — The Delaware State Treasury today announced the issuance of a request for proposal (RFP) seeking qualified investment banks to assist the Treasury in managing the state’s $2 billion investment portfolio. This action is part of the Treasury’s multi-phase plan to increase returns on the portfolio without increasing the current level of risk and to ensure the fees paid by the State are in line with the portfolio’s returns.
In October, State Treasurer Chip Flowers announced that the Treasury had brokered a strategic deal with two of the state’s current investment banks, JPMorgan Chase and Schroder Investment Management North America Inc., that reduced the fees charged by those investment banks to the state in light of the current economic climate. (Both investment banks are incorporated in Delaware.) Fee reductions allow the Treasury to return additional monies to the General Assembly from the portfolio, thereby helping taxpayers through cost savings. Prior to October, the State of Delaware had paid approximately $2.1 million annually under five investment manager agreements authorized by the Cash Management Policy Board (the Board) in 2008.
The RFP, which will remain open until December 17, is open to all financial institutions meeting the qualifications set forth in the document. The portfolio, which is invested by the Treasury pursuant to Delaware law and 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 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 purpose of this RFP is to adopt a number of the report’s recommendations by hiring qualified investment managers capable of managing the state’s realigned portfolio. Additional recommendations, including changing fixed-income securities that are rated no less than “A” from one of the three major credit rating services, remain subject to the procedures of the state’s Administrative Procedure Act, which requires public input prior to adoption.
Simultaneously with issuing the RFP, Treasurer Flowers signed Directive #121126-01, strengthening the Treasury’s rules relating to the selection process. Under the terms of the Directive, the RFP selection committee would be prohibited from disqualifying small and medium- sized investment banks by requiring such banks to have the ability to hold large allocations of state funds. (Typically, such requirements also have a disproportionate effect on women- and minority-owned financial institutions.) Rather, the RFP selection committee can recommend that the Treasury qualify small and medium-sized investment banks to hold a smaller allocation as long as the state does not incur an additional cost. Further, the Directive requires that any individual having a majority ownership interest in an investment bank or having a potential business conflict of interest who has input in the selection process either recuse from the process or meet certain ethical requirements promulgated by the state.
Upon announcing the RFP and issuing the Directive, Treasurer Flowers stated, “Our Treasury, backed by the full faith and credit of the people of Delaware, will continue working to provide additional funds to the General Assembly by effectively and safely managing our portfolio. The ability to manage and invest our portfolio has a direct impact on the lives of Delawareans and I am confident that this process will result in the State hiring the best group of diverse investment managers at a cost-effective rate. As we have stated on numerous occasions, the door of opportunity for those seeking to do business with the Treasury will be open, not closed. This Directive ensures that the process of selecting those investment banks managing state funds will be fair, open and competitive. When the people of our great state reflect upon the conduct and actions of this important office, we want them to say that, without question, their Treasury is ‘fair, effective and innovative’ – each a fundamental expectation of governing in these challenging times.”
Further, Treasurer Flowers stated, “Since the RFP selection process has commenced, we are hopeful that the Governor, the applicable members of his cabinet and the new Controller General will work with the appointed members of the Board to begin the approval process for changing the credit requirements for permissible investments (as recommended by our independent investment advisor) through the state’s open government laws. While we understand open government may be challenging for those serving on appointed boards, we must never bypass the consent of the people, and the laws designed to protect their input, in determining the manner in which their funds are invested.”
The RFP is available at treasury.delaware.gov or bids.delaware.gov.
