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MID CAP VALUE INVESTMENT ADVISORY AGREEMENT MID CAP VALUE INVESTMENT ADVISORY AGREEMENT BETWEEN THE BOARD OF TRUSTEES OF THE CITY OF CLEARWATER EMPLOYEES' PENSION FUND AND WEDGE CAPITAL MANAGEMENT L.L.P. THIS ~ AGREEMENT, is made and entered into this ~tJd- day of t?2, t) () 7 200tr, by and between the BOARD OF TRUSTEES OF THE CITY OF CLEARWATER EMPLOYEES' PENSION FUND, an autonomous governmental body, hereinafter referred to as the "BOARD" and WEDGE Capital Management L. L. P., hereinafter referred to as the "INVESTMENT ADVISOR": WITNESSETH: WHEREAS, Florida Statutes Chapter 112 vests the BOARD with full authority, power and responsibility to manage and administer the Pension Fund; and WHEREAS, the INVESTMENT ADVISOR has expressed an interest in serving the BOARD to manage the mid cap value component of the BOARD'S portfolio, hereinafter referred to as the "Account"; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, the parties agree as follows: 1. APPOINTMENT OF MID CAP VALUE INVESTMENT ADVISOR. The BOARD does hereby appoint the INVESTMENT ADVISOR as the manager for the mid cap value portfolio of the Pension Fund, and any -1- additions thereto, including proceeds of sales, dividends and interest. The INVESTMENT ADVISOR hereby accepts such appointment and agrees to manage the investment and reinvestment of such assets of the Pension Fund. 2 . TERM. This Agreement shall commence upon the date set forth above and shall terminate as provided herein. 3. CUSTODY. The BOARD will appoint a custodian to take and have possession of the assets of the Account. ADVISOR shall not be the custodian of the assets. INVESTMENT 4. DISCRETION. INVESTMENT ADVISOR shall have full power to supervise and direct the investment of the Account, making and implementing investment decisions, all without prior consultation with the BOARD. The INVESTMENT ADVISOR hereby acknowledges and agrees that it has been provided with the statement of investment policy duly adopted by the BOARD in accordance with its authority under state law. Consistent with that policy the INVESTMENT ADVISOR shall, in the performance of its duties, place orders for the purchase, sale, or exchange of equity securities on behalf of the Pension Fund whenever the INVESTMENT ADVISOR deems it to be in the best interest of the Pension Fund to do so. The INVESTMENT ADVISOR shall diligently execute such transactions in a method and manner and at such times as to procure the best realized price. The BOARD acknowledges and agrees that INVESTMENT ADVISOR may aggregate purchase or sale orders for the -2- Account with purchase or sale orders for the same security for other clients' accounts where such aggregation is likely to result generally in a more favorable net result for its clients. However, INVESTMENT ADVISOR is under no obligation to aggregate orders. The BOARD further acknowledges that circumstances may arise under which INVESTMENT ADVISOR determines there lS a limited supply or demand for the security. Under such circumstances, the BOARD acknowledges that, while INVESTMENT ADVISOR intends to allocate the opportunity to purchase or sell that security among those accounts on an equitable basis, INVESTMENT ADVISOR is not required to assure equality of treatment among all accounts in connection with every trade. Where, because of prevailing market conditions, it lS not possible to obtain the same price or time of execution for all securi ties purchased or sold for clients' accounts, INVESTMENT ADVISOR will allocate the securities in accordance with INVESTMENT ADVISOR's order allocation procedures. The INVESTMENT ADVISOR further acknowledges that it has been provided with and understands the Commission Recapture Program duly adopted by the BOARD, together with a list of recapture agents. Subject to its continuing duty to secure best execution on behalf of the Pension Fund, the INVESTMENT ADVISOR agrees to utilize the recapture agents in all transactions where it is reasonable to do so and as long as one of the recapture agents -3- appears on the INVESTMENT ADVISOR's approved broker list. In selecting brokers or dealers for execution, the INVESTMENT ADVISOR will consider a number of factors including, but not limited to, price (including commissions or mark-up), the size and difficulty of the order, the reliability, integrity and financial soundness of the broker or dealer, the general operation or execution capabilities or the broker or dealer, the broker or dealer's expertise in particular markets and the research services provided by the broker or dealer. The INVESTMENT ADVISOR may pay a broker or dealer a commission in excess of that which another broker or dealer might have charged for executing a transaction. If the INVESTMENT ADVISOR determines, in good faith, that the commission is reasonable in relation to the value of the brokerage and/or research services provided by such broker or dealer. Research services obtained by brokers or dealers may be used in servicing all accounts managed by the INVESTMENT ADVISOR and its affiliates. 5. INVESTMENT OBJECTIVE AND POLICY. The primary objective of the mid cap value portfolio is to seek as high a level of total return that is consistent with prudent risk through investments in a diversified portfolio of equity securities and cash equivalents. Eligible cash equivalents would generally include the following categories with maturities of less than one year: -4- a. Any United States Government security which is guaranteed by the full faith and credit of the United States; b. Any United States Government security which is an obligation of, and issued by, instrumentalities, including any of its agencies or the Federal National Mortgage Association; c. Certificates of deposit or money market certificates issued and guaranteed by any commercial bank, trust company or savings and loan association having its principal place of business in the City; d. Commercial paper rated A-lor P-I by a nationally recognized rating service; e. Bankers Acceptances of United States banks rated AAA by a nationally recognized rating service; f. Any other cash or equivalent security authorized under the laws governing the Fund. The INVESTMENT ADVISOR agrees to observe the Code of the City of Clearwater and the investment policy as set forth by the BOARD. In the event that the INVESTMENT ADVISOR should purchase any security in violation of the policy of the BOARD, and as a result of any sale thereof realizes a loss as measured by the ini tial purchase price of the security, the INVESTMENT ADVISOR shall make the Board whole for any such losses. -5- 6. COMPENSATION AND EXPENSES. The BOARD shall compensate from the Pension Fund the INVESTMENT ADVISOR for all services actually, timely and faithfully rendered hereunder, for the period of this Agreement to be billed and paid at the end of each calendar quarter. Said fee shall be computed according to the attached schedule A. A statement showing the amount of the fee payable shall be submitted to the BOARD by the INVESTMENT ADVISOR promptly after the start of each quarterly period. It is understood that the INVESTMENT ADVISOR shall be responsible and liable for all expenses incurred by it in performing its obligations hereunder, except that any brokerage commissions, stock transfers and other similar charges which may become due on account of transactions for the account shall be payable from the account hereunder, subject to the availability of funds. 7. DELIVERY OF SECURITIES. The INVESTMENT ADVISOR shall direct that all securities purchased for the Pension Fund be registered in the name of, and be delivered to, the Pension Fund and/or the Trustee, custodian or its nominee. 8. REPORTS. The INVESTMENT ADVISOR shall provide the BOARD with a monthly statement of the status of the Account. In addition, the INVESTMENT ADVISOR shall provide quarterly written reviews of the performance of the Account, presented in person to the BOARD, and such other periodic reports or information as the -6- BOARD may reasonably request. All performance reports reported to the Fund shall be gross of all fees and transaction costs and shall be time weighted. The written quarterly report shall outline the overall position of the portfolio with a complete listing of each security showing the cost, market value and yield at the close of the reporting period. The report shall also include all portfolio transactions during the preceding quarter. The report shall also include a listing of those transactions in which the Commission Recapture Program was utilized and those in which it was not. All monthly reports shall include a listing of all trades, broker utilized and the cost of the trade. 9. NON-DISCRIMINATION. The INVESTMENT ADVISOR shall not discriminate in its employment practices during the term of this Agreement on the basis on race, creed, color, sex, age, physical handicap, marital status, or national origin. 10 . PROHIBITION AGAINST CONTINGENT FEES. The INVESTMENT ADVISOR warrants that it has not employed or retained any company or person, other than a bona fide employee working solely for the INVESTMENT ADVISOR, to solicit or secure this Agreement and that it has not paid or agreed to pay any person, company, corporation, individual, or firm other than a bona fide employee working solely for the INVESTMENT ADVISOR, any fee, commission, percentage, gift, or other consideration contingent upon or resulting from the award or making of this Agreement. -7- 11. DISCLOSURE. The INVESTMENT ADVISOR agrees to disclose, in writing to the BOARD within 10 business days, if the INVESTMENT ADVISOR becomes the subject of an investigation by the Securities and Exchange Commission for alleged breach of federal securi ties laws; any investigation by the U. S. Department of Justice for allegations relating to violation of federal securities laws or related allegations of fraud; or if the INVESTMENT ADVISOR is named as the defendant in any civil action alleging fraud, negligence or breach of fiduciary responsibility. 12. CONFIDENTIAL RELATIONSHIP. All information and advice furnished by either party to the other shall be treated as confidential and shall not be disclosed to third parties unless requested by a regulatory authority or otherwise as required by law. Notwithstanding the foregoing, institutional clients acknowledge that INVESTMENT ADVISOR may inform others that they are a client of INVESTMENT ADVISOR by appearance on a representative client list or other means. 13. NON-EXCLUSIVE CONTRACT. INVESTMENT ADVISOR acts as INVESTMENT ADVISOR to other clients and may give advice, and take action, with respect to any of those which may differ from the advice given, or the timing or nature of action taken, with respect to the Account. INVESTMENT ADVISOR shall have no obligation to purchase or sell for the Account, or to recommend for purchase or sale by the Account, any security which -8- INVESTMENT ADVISOR, its principals, affiliates or employees may purchase or sell for themselves or for any other clients. 14. AGREEMENT NOT ASSIGNABLE. No assignment (as that term is defined ln the Investment Advisors Act of 1940) of this agreement may be made by INVESTMENT ADVISOR without written consent of the BOARD. 15. NOTICE OF PARTNERSHIP CHANGES. INVESTMENT ADVISOR will notify the BOARD of any change ln the membership of its partnership within a reasonable time after such change. 16. COMMUNICATIONS. Instructions with respect to securities transactions may be given orally and, where deemed necessary, may be confirmed in writing as soon as practicable. Notices required to be given under this agreement shall be sent in person, by U.S. mail, by overnight mail, or by facsimile transmission (with a hard copy sent by U. S. mail) and shall be deemed given when received at the addresses specified below, and, as to the Custodian, at the address that it may specify to INVESTMENT ADVISOR in writing, or at such other address as a party to receive notice may specify in a notice given in accordance with this provision. INVESTMENT ADVISOR may rely on any notice from any person reasonably believed to be genuine and authorized. If to BOARD: If to INVESTMENT ADVISOR: Finance Director City of Clearwater P.O. Box 4748 John G. Norman WEDGE Capital Management L.L.P. Suite 2920 -9- Clearwater, FL 33758-4748 301 South College Street Charlotte, NC 28202-6002 17. DISCLOSURE STATEMENT. The BOARD acknowledges receipt of INVESTMENT ADVISOR's Disclosure Statement, as required by Rule 204-3 under the Investment Advisors Act of 1940, prior to the execution of this agreement. If provided less than 48 hours prior to the date of execution of this agreement, the BOARD shall have the option to terminate this agreement without penalty in writing within five business days after that date of execution; provided, however, that any investment action taken by INVESTMENT ADVlSOR with respect to the Account prior to the effective date of such termination shall be at the BOARD's risk. 18. FORM W-g. The BOARD authorizes INVESTMENT ADVISOR to execute and deliver for the fund IRS Form W-9 (Request for Taxpayer Identification Number and Certification). The fund is not now (and the Board will promptly notify INVESTMENT ADVISOR should it become) subject to back-up withholding. 19 . GENERAL . (a) The INVESTMENT ADVISOR warrants that it is registered as an investment advisor under the Investment Advisers Act of 1940, and that it will maintain such registration during the term of this Agreement. The INVESTMENT ADVISOR acknowledges that it is a fiduciary with respect to the management of the assets of the Fund and that it is subject to and shall be governed by the -10- "prudent man rule," and the "prudent investor rule" as those terms are defined and interpreted under the provisions of the Employee Retirement Income Security Act and under the provisions of the law of Florida. (b) This Agreement may be terminated by either the INVESTMENT ADVISOR or the BOARD on thirty (30) days' written notice, with or without cause. Fees will be prorated to date of termination. Termination will not affect commitments made for the BOARD prior to that notice. Upon termination of this agreement INVESTMENT ADVISOR is under no obligation to recommend any action with respect to the securities or other property held in the Account. (c) The INVESTMENT ADVISOR acknowledges that it is fully familiar with the laws of the State of Florida governing public employee retirement systems (Chapter 112, Part VII), and is fully familiar with the provisions of the Code of the City of Clearwater relating specifically to the management of this Pension Fund. The Agreement shall be performed in accordance with all applicable federal, state, and local laws and administrati ve regulations and shall ln its interpretation be governed by the laws of the State of Florida. (d) In any action to enforce the provisions of this Agreement venue shall be in Pinellas County, Florida, and should any action be necessary to enforce the terms of this Agreement, -11- the prevailing party shall be made whole, including any costs and legal fees. (e) The BOARD agrees to furnish the INVESTMENT ADVISOR with all documents, authorizations and powers as might be reasonably required by the INVESTMENT ADVISOR to carry out its obligations according to the terms of this Agreement. (f) The INVESTMENT ADVISOR shall on an annual basis provide the BOARD with Securities and Exchange Commission form ADV. (g) The INVESTMENT ADVISOR shall for the term of this Agreement maintain an errors and omissions insurance policy in the amount of at least one million dollars. The INVESTMENT ADVISOR shall furnish the BOARD with proof of its errors and omissions insurance. The Board will maintain a fidelity bond satisfying the requirements of Section 412 of ERISA and shall include the Investment Advisor as its agent in its coverage. (h) All proxy materials relating to any security held by the INVESTMENT ADVISOR shall be voted in accordance with the proxy voting policy adopted by the INVESTMENT ADVISOR. The BOARD represents that such delegation of such voting rights is duly authorized and is consistent with applicable plan documents. The BOARD agrees to instruct the Custodian to forward all proxy materials and related shareholder communications to the INVESTMENT ADVISOR promptly upon receipt. INVESTMENT ADVISOR shall not be liable with regard to voting of proxies if the -12- INVESTMENT ADVISOR does not receive the proxy materials and related communications in a timely manner. (i) Any portfolio manager or other key personnel assigned by the INVESTMENT ADVISOR to performance under this Agreement may not be removed by the INVESTMENT ADVISOR without promptly providing notice to the BOARD subsequent to his or her departure. (j) In the event of a dispute between the parties, the parties may by mutual consent agree to submit the matter to binding arbitration. (k) This Agreement constitutes the entire understanding of the BOARD and the INVESTMENT ADVISOR and may be amended only by written instrument executed by both parties. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written. Attested: BOARD OF TRUSTEES OF THE EMPLOYEES' PENSION PLAN OF THE CITY OF CLEARWATER, FLORIDA By: -~~~ ~ Frank V. Hibbard Chairperson -13- Approved as to form: Attest: ....................".... -...-.... ~ :' ,.......,~ - ...-'" - - "'.." -0.' ./ . Kaufman WEDGE Capital By: Officer -14- EXHIBIT A City of Clearwater Employees' Pension Fund Fee Schedule WEDGE Capital Management L.L.P. Mid Cap Value .75 per cent per year on the first $10,000,000 .65 per cent per year on the next $15,000,000 .50 per cent per year on allover $25,000,000 Initial as applicable: INVESTMENT ADVISOR is instructed to bill the BOARD for its advisory services. Fees for advisory services will be billed directly to the Custodian and automatically paid from the Account. INVESTMENT ADVISOR lS instructed to provide a quarterly invoice, including all calculations, to BOARD at the same time billing lS performed for the Custodian. Custodian will provide BOARD with a quarterly notice of the amount of advisory fees withdrawn from the Account and paid to INVESTMENT ADVISOR. Fees will be billed quarterly in arrears, based on market value as of the last business day of the quarter. Deposits or withdrawals, made any time during the quarter, exceeding a net aggregate of ten percent of the Account's market value on the last business day of the quarter, will be prorated over the quarter on the basis of the number of days the funds were in the Account. INVESTMENT ADVISOR shall not be compensated on the basis of a share of capital gains upon, or capital appreciation of, the Account. -15-