Native Hawaiian Trust Fund Update


August 2003 Ka Wai Ola Article

`Ano`ai kakou…  In October of 2002, the Board of Trustees adopted the “Manager-of-Managers” approach to oversee OHA’s Native Hawaiian Trust Fund.  Basically, this means that an investment advisor would be hired to build a portfolio of the best investment managers and would share fiduciary responsibilities with the Board, or so we thought.

On January 16, 2003 the Board hired Goldman Sachs & Company and Frank Russell Company to serve as OHA’s two Manager-of-Managers.  I abstained from the vote because I questioned the hiring of Goldman Sachs.  What followed after that meeting can only be described as irresponsible on the part of the board chairman.

A contract drawn up by Goldman was signed by the administrative staff, with the board chair’s approval.  It gives Goldman full control over the assets that they manage and removes the Board’s direct oversight.  Also, the burden of liabilities was shifted to OHA.

Our past contracts specifically stated that OHA, it’s Trustees and employees would be protected from all actions, suits, claims, damages, and expenses that arise out of the contractor’s errors, omissions or acts.  Goldman’s contract has no such language.  OHA’s protection was further eroded when the budget committee chair rejected the recommendation of our investment policy consultant, who strongly advised the Board to hire a firm to monitor Goldman and Frank Russell.

According to the latest performance report, Goldman has been outperformed by Frank Russell in March, April, and May of this year.  Goldman made a total of $15,651,672 versus Frank Russell who made a total of $16,236,725 for a difference of $585,053.

The budget chair has pushed hard for Goldman since October of 2002, when he abruptly placed Goldman on the Board agenda for consideration, even though they missed the submittal deadline.  He continued to support them despite questions from Trustees over why other investment managers who missed the deadline were not considered.  He also dismissed the reports of serious indiscretions involving Goldman that were reported in the national media.

On February 9, 2003, a CBS’s 60-Minutes exposé reported that hundreds of former shareholders of Montana Power were suing Goldman, claiming that they were misled into transforming their power company into a telecom company.  They claim that Goldman brought Montana Power, once worth billions, to the brink of bankruptcy.

The plaintiff’s attorney said, “There would be memos in which Goldman Sachs would just keep pushing, ‘This has to be done now… The market for this can only get worse… They were definitely the driver.’”  He also stated that Montana Power’s CEO needed Goldman to pull off the deal and that it was Goldman that made most of the presentations to Montana Power’s board.

Goldman’s contract with Montana Power also required that, “Any advice provided by Goldman Sachs…is exclusively for the information of the board of directors and senior management of the company.”  The lawsuit claims that this basically means, “Don’t tell the shareholders.”

Goldman pocketed close to $20 million on the deal.  However, Montana Power employees lost their jobs, retirees lost their life savings, and Montana’s relatively low electric bills went through the roof.  Businesses that depended on the cheaper electricity were forced to shut down.  Goldman Sachs did not offer any comments for the report.

I distributed taped copies of the program to all Trustees and also asked Goldman for an explanation.  Unfortunately, since the case is still in court, they were not able to give me any details.

Finally, instead of continuing to invest only in different types of stocks, OHA should consider alternative investments such as natural gas or business ventures.

For example, Sealaska is a Native Alaskan owned corporation with over 16,500 shareholders.  In addition to financial markets, their principal investments are in forest products, telecommunications, entertainment, plastics, and minerals development.  For the past 30 years Sealaska has diversified through many businesses and has become a leading exporter and one of the strongest economic and political forces in Alaska. 

In order to keep the Trust in perpetuity for our beneficiaries, OHA must invest in land and other tangible investments as other Native peoples have done.  Mālama pono!