The Cincinnati Southern Railway Board of Trustees will begin negotiating with investment firm UBS on a contract to advise the city as it invests the $1.6 billion it will get from the route purchased by Norfolk Southern.
City voters approved the sale by a slim margin in the November 2023 election. The sale will close in March, after which the city will receive the money.
The board considered five firms based on the fees each charges, the background of each firm, minority inclusion, investment philosophy and proposed approach, and how investment performance is measured and evaluated.
The board hired a consulting firm to rank the 16 applicants who applied for the role. The board winnowed those down to five: UBS, Fifth Third Bank, NEPC, FEG Investment Advisors and Northern Trust.
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In the end, board members unanimously agreed on UBS. But that's just the start of the process.
"There might not be a perfect comfort level on Day One," board member and former Cincinnati Mayor Charlie Luken said. "But I don't see anyone better in this pile that gives me a better answer ... than UBS."
In the Monday meeting, during which the board voted on the selection, members said they'd like to see better worst-case scenarios from UBS in years when investment income is bad.
"If I'm very concerned about hitting this 25 percent negative return, saying to UBS, 'Go back and give us a couple examples of portfolios that don't hit that but still give us that five-and-a-half percent return we're looking for,' " board member and former Mayor Mark Mallory said.
Mallory was also concerned about increasing minority participation in the management of the funds. He suggested the board explore a separate company with more minority representation to perform so-called custodial services — that is, the actual holding of the money. UBS does provide that service, but the board could choose to find another firm to do it.
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Despite two hours of public deliberations, board member and former Cincinnati City Council member Amy Murray says the decision was somewhat straight-forward.
"I think we heard the same presentations and are thinking about it the same way we all came to these conclusions," she said. "I think if we'd had five different ones we'd be here for another seven hours."
All five finalists submitted presentations to the board detailing their proposed investment strategies. UBS' presentation is below.
The global firm has 236 employees in Cincinnati. The division of the company that would advise on the railway proceeds currently manages a portfolio of $91 billion in assets. It forecasted a roughly 6.5% return on investment and proposed fees between .06% and .1%.