Cincinnati Southern Railway Board taps UBS to manage $1.6 billion railroad fund
Update, Jan. 22, 4 p.m.:
The Cincinnati Southern Railroad Board Monday unanimously selected the international money management firm UBS to oversee the $1.6 billion trust that is being created from the sale of the city-owned railroad.
The board determined UBS offered the best return and a fair fee of roughly $1.46 million a year to $2.1 million a year. It also endorsed UBS's commitment to investing in minority communities. Board President Paul Muething will negotiate the final contract.
The decision came after a five-hour board meeting last week in which five firms that had been selected from a field of 17 applicants presented a management plan for the trust.
Original story, Jan. 15:
Ahead of the official March sale of the Cincinnati Southern Railway to Norfolk Southern for $1.6 billion, the city board that oversees the railroad has narrowed the list of potential money managers from 17 to five.
The Cincinnati Southern Railroad Board will interview the five firms during a public meeting at 1 p.m. Wednesday at 950 Eden Park Drive.
Two local firms made the list: Fifth Third Bank and FEG Investment Advisors.
The selections were made last week during a public meeting at the Walnut Hills branch of the Cincinnati and Hamilton County Public Library. The board paid a private consultant to assess the 17 bidders, but those scores were only part of what the board used to winnow the list.
Sycamore Township’s Ascension Wealth Management, the only minority-owned firm that bid on managing the fund, did not make the shortlist of firms to be interviewed.
It scored last in a private consultant's assessment of compliance for what the board was seeking, but also had the smallest client portfolio of any of the bidders.
The Cincinnati Southen Railway Board, which oversees the railroad and will after the final sale oversee the trust, is choosing the money manager. Members have been clear minority participation in running the trust fund is important, but the focus of the discussion last week to narrow the list was about which firm best understood the city of Cincinnati's needs and presented a plan board members thought would provide the largest return for citizens.
The scoring took into consideration experience, size, fees, strategy, thoroughness of response and minority participation.
Cincinnati's railroad sale: How we got here
The board, with approval from Cincinnati voters, agreed last year to sell the 143-year city-owned railroad, rather than continue to lease the railroad to Norfolk Southern. The $1.6 billion sale proceeds will be put into a trust fund, from which investment proceeds will be used to repair current city infrastructure. The trust is expected to bring in at least $56 million a year into the city's budget, as opposed to the lease, which provides roughly $26.5 million a year now.
The lease was set to expire at the end of 2026, which prompted the sale discussion.
The board will oversee the money manager and decide how much money each year to give the city, depending on trust earnings.
The board hired Davenport & Company, a Virginia-based Wealth Management Firm it has worked with in the past, to assess the firms. The bids are not public under Ohio law, but two Davenport vice presidents last week at the board meeting outlined their findings and shared a scoring system they provided to the board. There was also a discussion about what each firm charged in fees, but the amounts were not shared during the meeting.
That information should be public for the winning bidder.
Also, not making the cut: Marquette Associates, which manages the city's pension. It was among the top five scorers, but board member and former Cincinnati Mayor Charlie Luken said it was important to keep the trust management and city business separate.
5 finalists
Rankings are based on a private consultant's assessment of how the company complied with the bidding requirements set by the Cincinnati Southern Railway Board. Seventeen companies bid to manage the trust and a consultant gave each a score, the highest coming in at 91.25%, the lowest at 47.92%. Two companies ranked fourth with the same score and two companies ranked fifth with the same score.
Fifth Third
Founded: 1858.
Located: Cincinnati.
Managed assets under advisement: $12 billion (in the institutional services division)
Consultant's score: 12th.
Fund Evaluation Group (FEG) Investment Advisors
Founded: 1988.
Located: Cincinnati.
Managed assets under advisement: $73.8 billion.
Score: Ninth.
Founded: 1862.
Located: Zurich, Switzerland, but has offices all over the world, including a 236-employee Cincinnati office.
Managed assets under advisement: $91 billion under management, $17 billion of it in public funds.
Score: Fifth.
Founded: 1889.
Located: Chicago.
Managed assets under advisement: $124 billion.
Score: Seventh.
Founded: 1986.
Located: Boston .
Managed assets under advisement: $1.5 trillion.
Score: Second.
This article originally appeared on Cincinnati Enquirer: Railroad board taps UBS to manage $1.6 billion railroad fund
