ESBD_490083_1771275208680_RFQ Investment and MFP Advisory Services (F) 20926.pdf

CITY OF WACO, TEXAS

REQUEST FOR PROPOSALS

INVESTMENT ADVISORY SERVICES AND

MUNICIPAL FINANCIAL PRODUCTS ADVISORY SERVICES

1. INTRODUCTION

The City of Waco, Texas (the "City") is seeking qualified firms to provide professional advisory services in two distinct but complementary service areas:

Service Area 1: Investment Advisory Services under the Texas Public Funds Investment Act

Service Area 2: Municipal Financial Products (MFP) Advisory Services

Respondents may propose to provide services for one or both service areas. The City reserves the right to engage one firm for both service areas or separate firms for each service area, depending on the qualifications and expertise demonstrated by respondents.

2. SERVICE AREA 1: INVESTMENT ADVISORY SERVICES

2.1 Purpose and Scope

The City seeks to engage a qualified investment advisor to provide sub-advised discretionary investment advisory services for the City's investment portfolio in full compliance with the Texas Public Funds Investment Act (TFPIA). The selected advisor will serve as a fiduciary to the City and will provide comprehensive oversight, independent analysis, and quarterly reporting on all investment activities.

2.2 General Qualifications for Service Area 1

The investment advisor must demonstrate:

• Registration as a Registered Investment Advisor (RIA) with the U.S. Securities and Exchange Commission or appropriate state securities regulator

• Minimum of five (5) years of experience providing investment advisory services to Texas public entities subject to the TFPIA

• Demonstrated expertise in Texas public funds investment management and TFPIA compliance

• Fiduciary commitment to act solely in the best interest of the City

• Independence from broker-dealers, banks, and investment product providers (no material conflicts of interest)

• Professional staff with relevant certifications (CFA, CFP, or equivalent)

• Experience working with municipalities of comparable size and complexity

2.3 Core Investment Advisory Services

The selected investment advisor shall provide the following services:

A. Investment Strategy and Policy Development

• Review and recommend updates to the City's Investment Policy to ensure compliance with TFPIA and best practices

• Develop and maintain written investment strategies aligned with the City's cash flow needs, risk tolerance, and TFPIA requirements

• Assist in establishing appropriate investment objectives, performance benchmarks, and risk parameters for different fund types

• Provide guidance on permitted investments under TFPIA and the City's Investment Policy

B. Investment Oversight and Due Diligence

• Provide comprehensive oversight of all investment purchases and transactions

• Conduct independent due diligence on proposed investments, including credit analysis and suitability assessment

• Review and approve all investment transactions prior to execution to ensure compliance with TFPIA, the City's Investment Policy, and prudent investment practices

• Monitor ongoing creditworthiness and risk characteristics of existing portfolio holdings

• Evaluate and recommend qualified broker-dealers and financial institutions for the City's authorized list

• Demonstrate a robust methodology for sourcing and selecting securities for the portfolio

• Leverage multiple trading desks, counterparties and sources of liquidity to ensure best execution on the purchase and potential sale of securities

C. Safekeeping and Custody Oversight

• Oversee safekeeping arrangements for all City investments

• Review and recommend custodial service providers

• Assess custodial fee structures and secure competitive pricing

• Verify proper delivery, settlement, and custody of securities

• Reconcile custodial statements with City records

• Ensure all securities are held in the City's name or in a manner that protects the City's ownership interest

• Monitor compliance with collateralization requirements for deposits and repurchase agreements

• Maintain a robust cyber-security program and demonstrate business continuity capabilities

D. Portfolio Management Guidance

• Provide ongoing recommendations for portfolio composition, duration, and diversification

• Assist City staff in developing trade execution strategies

• Monitor market conditions and provide timely market intelligence

• Recommend portfolio adjustments in response to changing market conditions, cash flow needs, or regulatory requirements

• Advise on the timing and structure of specific investment transactions

E. Performance Monitoring and Reporting

• Prepare comprehensive quarterly investment reports for submission to the City Council, including:

• Summary of investment holdings by type, maturity, and book value

• Summary of investment activity during the quarter (purchases, calls, maturities)

• Portfolio performance compared to established benchmarks

• Compliance certification with TFPIA and the City's Investment Policy

• Market value analysis and unrealized gains/losses

• Portfolio characteristics (weighted average maturity, yield, duration)

• Cash flow analysis and liquidity assessment

• Provide written certification that the investments comply with TFPIA and the City's Investment Policy

• Present quarterly investment reports to the City Council or designated committee as required

• Provide ad hoc reports and analysis as requested by City staff or leadership

F. Regulatory Compliance

• Maintain current knowledge of TFPIA requirements and updates

• Ensure all investment activities comply with TFPIA, City Investment Policy, and applicable laws

• Assist with annual Investment Policy review and adoption process

• Support GFOA and Texas Comptroller reporting requirements

• Coordinate with external auditors on investment-related audit matters

• Provide training to City staff and officials on TFPIA requirements and investment best practices

• Alert the City of any regulatory changes that may require adjustments to the Investment

Policy

2.4 TFPIA-Specific Requirements

The investment advisor must demonstrate expertise in all aspects of the Texas Public Funds Investment Act, including but not limited to:

• Authorized investments under TFPIA Section 2256.009

• Investment strategies under TFPIA Section 2256.005(e)

• Qualified broker and investment pool requirements

• Diversification and concentration limits

• Maximum stated maturity limitations

• Collateralization requirements for deposits and repurchase agreements

• Quarterly and annual reporting requirements

• Investment officer and advisor training requirements

• Conflicts of interest and disclosure requirements

2.5 Deliverables for Service Area 1

• Comprehensive quarterly investment reports delivered within 30 days of quarter end

• Annual Investment Policy review and recommended updates

• Presentations to City Council or designated committee as needed

• Ad hoc reports and analysis as requested

• Written compliance certifications

2.6 Compensation for Service Area 1

Respondents shall propose a fee structure that may include:

• Annual retainer fee

• Basis points on assets under advisement

• Hourly rates for specific projects

• Transaction-based fees (if applicable and disclosed)

All fees must be clearly disclosed, and the advisor must confirm that no compensation will be received from third parties in connection with City investments.

3. SERVICE AREA 2: MUNICIPAL FINANCIAL PRODUCTS (MFP)

ADVISORY SERVICES

3.1 Purpose and Scope

The City seeks to engage a qualified independent advisory firm to provide Municipal Financial Products (MFP) Advisory Services. These services are distinct from traditional municipal securities (bond) advisory services and traditional investment advisory services, and encompass specialized investment structuring, hedging, and optimization strategies related to debt-related funds, construction funds, and operational risk management.

3.2 General Qualifications for Service Area 2

The MFP advisor must demonstrate:

• Fiduciary duty to the City with no affiliations with banks, brokers, investment funds, or product providers that would create material conflicts of interest

• Specialized expertise in municipal financial products, including investments of bond proceeds, hedging programs, debt-related fund optimization, and commodity risk advisory

• Registration as a Municipal Advisor with the SEC and MSRB (or applicable exemption with equivalent fiduciary duties)

• For energy commodity advisory: Registration as a Commodity Trading Advisor (CTA) with the CFTC and membership in the National Futures Association (NFA), or equivalent qualification

• For non-bond-proceeds investment advisory: Appropriate registrations (e.g., RIA) when providing investment advisory services outside of municipal securities scope

• Minimum of five (5) years of experience providing MFP advisory services to municipal entities

• Demonstrated ability to coordinate with municipal securities advisors, investment advisors, legal counsel, and trustees

• Professional liability insurance appropriate for the scope of services

3.3 Core MFP Advisory Services

The selected MFP advisor shall provide the following services:

A. Financial Products Advisory

• Develop and implement frameworks enabling City staff to directly select and manage permitted investments, including establishing roles, program partners, processes, and reporting systems

• Structure investments for debt-related funds including project and construction funds, debt service funds, debt service reserve funds, capitalized interest accounts, and refunding escrow accounts

• Match investment maturities to known cash flow schedules to reduce required fund deposits, minimize negative arbitrage, optimize use of proceeds, and maximize project funding availability

• Conduct competitive, IRS-compliant procurement of specialized investment products, including U.S. Treasury securities, U.S. Agency securities, SLGS securities, flexible repurchase agreements, forward delivery agreements, guaranteed investment contracts, and escrow securities for refunding and defeasance transactions

• Assist the City in developing and maintaining a universe of qualified dealers and providers for each product category

• Evaluate and compare investment alternatives including LGIPs vs. direct investments, investment agreements vs. direct securities, cost-benefit analysis, risk-return efficiency assessment, and fee analysis

• Coordinate with all transaction partners including bond counsel, municipal securities advisors, investment advisors, underwriters, dealers, product providers, custodians, trustees, paying agents, escrow agents, and settlement agents

• Identify and resolve issues arising during pricing, execution, or settlement processes

B. Swap and Derivative Advisory

• Provide independent advisory services for interest rate swaps and derivative transactions, including structuring recommendations, competitive pricing and execution support, counterparty credit analysis, documentation review, post-trade compliance monitoring, and fair value calculations

• Provide advisory services for commodity hedging transactions, including natural gas hedging programs, electricity hedging programs, and other commodity risk management as applicable

• Integrate hedging strategies with debt service schedules and budgetary requirements

• Leverage multiple trading desks and counterparties to ensure best execution on swap and derivative transactions

• Seek best execution and competitive commission structures with counterparties

• Maintain robust compliance programs (Dodd Frank, CFTC, SEC, etc.) for complex financial products

C. Trade Maintenance and Compliance Reporting

• Provide ongoing position valuation and analytical support for GASB reporting requirements, including GASB 31, 53, and 72

• Monitor compliance with investment covenants and regulatory requirements

• Maintain comprehensive documentation of all transactions

• Integrate reporting with the City's treasury operations and provide support for external audit purposes

• Provide certifications of fair value for investment and hedging positions

D. Energy Risk Management Advisory

• Provide independent analysis and structuring of financial hedges for energy commodities, including evaluation of hedge instruments and strategies, competitive pricing and market analysis, execution support and transaction management, and post-trade monitoring and reporting

• Evaluate existing or proposed fixed-price supply contracts for energy commodities, including pricing competitiveness assessment, embedded risk analysis, alignment with operational and budgetary needs, and contract structure review

• Develop and conduct competitive procurement processes for fixed-price energy supply contracts, energy hedging instruments, and related energy products and services

• Monitor counterparty risk and seek to diversify exposure when possible

3.4 Online Modeling and Reporting System

Respondents may propose to provide a secure, web-based platform that enables authorized City staff to:

• Create and monitor debt structures, investment portfolios, and hedging positions

• Model fixed income portfolios and generate cash flow projections at individual fund and aggregate levels

• Evaluate cash flow sufficiency against obligations

• Conduct scenario testing for interest rate changes, drawdown schedule adjustments, and debt service variations

• Access dashboards and custom reports showing portfolio performance metrics, risk exposure analysis, upcoming funding requirements, and projected future interest income/expense

• Manage user access with tiered permissions and appropriate security controls

• Export data and reports for Council presentations, audit purposes, and public disclosure

• Integrate with existing City financial systems where feasible

This platform should complement (not replace) other advisory relationships and enable City staff to visualize and evaluate MFP strategies alongside other financial planning activities.

3.5 Specific Service Examples for Service Area 2

The MFP advisor should have demonstrated experience in the following types of engagements:

• Debt Service Fund Optimization: Transitioning from overnight or pooled investments to fixed-maturity securities matched to specific payment dates

• Project and Construction Fund Management: Structuring investment programs that match draw schedules

• Escrow-to-Maturity and Defeasance Portfolios: Designing and procuring securities portfolios for bond refundings

• Investment Program Design: Developing self-directed investment management frameworks

• Swap and Derivative Advisory: Structuring, pricing, and monitoring interest rate management programs

• Energy Risk Management: Analyzing financial hedges for energy commodities

• Portfolio Modeling and Cash Flow Analysis: Using analytical tools to model outcomes

• Training and Capacity Building: Educating City staff on best practices

3.6 Regulatory Compliance and Fiduciary Duties for Service Area 2

The selected MFP advisor must:

• Be registered as a Municipal Advisor with the SEC and MSRB and demonstrate adherence to MSRB Rule G-42 duties

• For energy commodity transactions: Hold registration as a Commodity Trading Advisor (CTA) with the CFTC and NFA membership

• For investments not related to bond proceeds: Hold necessary additional registrations (e.g., RIA)

• Demonstrate experience with IRS regulations governing municipal bond proceeds, arbitrage compliance, and SLGS

• Disclose all conflicts of interest in writing and comply with all applicable regulations

3.7 Deliverables for Service Area 2

• Written analyses and recommendations for proposed strategies and transactions

• Certifications of fair value for investment and hedging positions

• Reporting to support measurement and recognition of positions in financial disclosures

• Periodic presentations to staff, management, and City Council as required

• Support in developing or updating policies, procedures, and resolutions

• Training for City staff on MFP concepts and compliance requirements

• Annual or project-based reviews of debt-related fund strategies and market conditions

• Secure online dashboards and reports (if applicable)

• Comprehensive transaction documentation and compliance records

3.8 Coordination with Other Advisors

The MFP advisor will work collaboratively with the City's other professional advisors, including municipal securities advisors, investment advisors, bond counsel, financial advisors, underwriters, trustees, paying agents, and external auditors. The MFP advisor will not replace these relationships but will ensure coordination and alignment of strategies with the City's overall financial objectives and legal requirements.

3.9 Compensation for Service Area 2

Respondents shall propose a fee structure that may include:

• Annual retainer fees

• Transaction-based fees for specific services

• Hourly rates for consulting services

• Project-based fees for defined engagements

• Compensation structures required by IRS regulations for certain bond-related transactions

All fees must be clearly disclosed. The advisor must confirm that no compensation will be received from third parties in connection with City transactions.

4. GENERAL REQUIREMENTS APPLICABLE TO BOTH SERVICE AREAS

4.1 Independence and Conflicts of Interest

All advisors must:

• Serve as a fiduciary to the City

• Act solely in the best interest of the City

• Disclose all actual and potential conflicts of interest in writing

• Maintain independence from product providers, dealers, and other parties that may benefit from City transactions

• Not receive compensation from third parties related to City transactions unless fully disclosed and approved

4.2 Insurance Requirements

Selected advisors must maintain:

• Professional liability (errors and omissions) insurance of at least $2,000,000

• General liability insurance of at least $1,000,000

• Workers' compensation as required by Texas law

• Evidence of coverage must be provided prior to contract execution

4.3 Term of Engagement

• Initial term: Three (3) years from contract execution

• Renewal options: Two (2) additional one-year terms at the City's discretion

• Either party may terminate with 90 days written notice without cause

• The City reserves the right to terminate immediately for cause

4.4 Texas Law Compliance

All services must comply with applicable Texas law, including but not limited to:

• Texas Public Funds Investment Act (Chapter 2256, Texas Government Code)

• Texas Local Government Code

• Texas Public Information Act

• Texas Constitution (particularly Article XI regarding municipal debt)

• IRS regulations applicable to municipal securities and tax-exempt obligations

• All federal securities laws and regulations applicable to the services provided

5. SUBMISSION REQUIREMENTS

Respondents shall submit qualifications addressing the following elements for each Service Area for which they are proposing:

5.1 Executive Summary

• Brief overview of firm and proposed approach

• Identification of which Service Area(s) the firm is proposing to provide

• Summary of key differentiators

5.2 Firm Background and Qualifications

• Legal name, address, ownership structure, and history

• Description of firm's business model and service focus

• Registrations, licenses, and regulatory status

• Professional certifications of key personnel

• Confirmation of fiduciary status and independence

• Litigation history and regulatory actions (past 10 years)

5.3 Experience and References

• Minimum of five (5) references from Texas municipalities or public entities

• Description of relevant engagements similar in scope to requested services

• Specific experience with TFPIA compliance (Service Area 1)

• Specific experience with municipal financial products (Service Area 2)

• References should include entity name, contact information, scope of services, duration of relationship, and contact person details

5.4 Staff Qualifications and Team Structure

• Resumes of key personnel who would serve the City

• Organizational chart showing reporting relationships

• Professional certifications and training

• Staff continuity and retention information

• Commitment of key personnel to the City's engagement

5.5 Approach and Methodology

• Detailed description of proposed approach to providing requested services

• Work plan and timeline

• Communication protocols and reporting frequency

• Technology platforms and tools (if applicable)

• Quality control procedures

• Examples of deliverables (reports, analyses, presentations)

5.6 Fee Proposal

• Detailed fee structure for proposed services

• All-inclusive pricing with no hidden costs

• Basis for fees (retainer, assets under advisement, hourly, transaction-based)

• Estimate of annual costs based on the City's current portfolio and activity levels

• Payment terms and schedule

• Disclosure of any third-party compensation

5.7 Additional Information

• Any unique qualifications or value-added services

• Information about technology platforms or reporting systems

• Training programs available for City staff

• Transition plan from current arrangements

6. EVALUATION CRITERIA

Qualifications will be evaluated based on the following criteria:

For Service Area 1 (Investment Advisory Services):

• Firm qualifications and TFPIA expertise (35%)

• Experience with Texas public entities (10%)

• Staff qualifications and resources (15%)

• Proposed approach and methodology (35%)

• Fee structure and cost (5%)

For Service Area 2 (MFP Advisory Services):

• Firm qualifications and specialized expertise (25%)

• Experience with municipal financial products (20%)

• Staff qualifications and resources (10%)

• Proposed approach and methodology (30%)

• Fee structure and cost (15%)