Commonfund | Rowena Akana

Fiscal Responsibility: Make a budget & stick to it

`Ano`ai kakou… As part of my fiduciary duties as a Trustee of OHA, I attended a forum conducted by one of OHA’s money managers. The Commonfund Forum 2015: Converging Ideas – Creative Answers was held from March 14 17, 2015, is one of the preeminent annual conference for institutional investors.

The forum examined the many challenges endowments, foundations, charities, pension funds and other long-term investors are currently facing. I had a productive and informative discussion with Commonfund regarding OHA’s spending policy and budget process.

Commonfund had several recommendations:

The Board of Trustees should have a clear understanding of their role as fiduciaries to the Native Hawaiian Trust Fund. Trustees must be disciplined enough to hold the line on budgets and expenditures, otherwise OHA’s budget will continue to swell to unsustainable levels.
Trustees should broaden their knowledge regarding budgeting and investments by regularly attending informative conferences such as the ones presented by our money managers. I have attended several forums by Goldman Sachs, JP Morgan, and Commonfund that have providing me with invaluable information and a world view on market trends.
Board Leadership can also engage all of its members by giving Trustees meaningful work and allowing them to gain further financial experience;
Board and Committee meetings could be improved by focusing agendas on specific themes and similar issues. This would allow Trustees to express their opinions while keeping the meeting on topic.
The Board of Trustees should consider conducting role playing exercises. For example, how would we react to worse case scenarios, such as catastrophic terrorist attacks or natural disasters? This would prepare us for the worst and it would also allow Trustees to understand the choices and processes that may be necessary in a market crash or some other catastrophic event.
OHA should learn from the past as it plans for the future. The Trustees can easily analyze past asset allocations and determine what worked and what didn’t work.
When considering new spending everyone at OHA, whether they are staff or Trustees, we must always consider: (a) Whose money we are spending and investing; (b) Whether we are being prudent; (c) Whether we have we developed priorities and timelines for spending; and (d) Whether we have clarified our short term and long term goals.
Changing our spending policy limit to 4-½ percent of the Trust Fund would be a wise move in the current economy.

Prudent spending, sticking to budgets and getting rid of the Fiscal Reserve slush fund are all much needed changes that were recommended by Commonfund. Commonfund has also agreed to look at our spending policy and make recommendations for the future.

After attending another workshop with our two money managers, it appears clear that the stock market will not be a place for OHA to look for great returns on our investment over the next few years. The predictors are very gloomy; all the more reason to be cautious and prudent with spending.

Fiscal issues Trustees need to discuss

`Ano`ai kakou… Back in July, I travelled to New Haven, Connecticut, to attend the Commonfund Endowment Institute, Level II, at the Yale School of Management.

The Institute provides in-depth courses on how nonprofit organizations such as OHA should invest their funds in the stock market and in other asset classes such as emerging markets, natural recourses, and commodities, etc., in order to secure funds in perpetuity for future generations.

In these very uncertain times, it is important for trustees of endowment funds and nonprofits to be well educated on the details of how money-mangers are investing their funds.

The following are my recommendations for OHA based on what I learned at the Institute:

(1) Trustee Training – OHA should invite organizations such as Grant Thornton to conduct educational workshops for the board, such as one on Governance. My feeling is that if all trustees attended seminars, like those offered by Commonfund, we would have a more active and informed board who would be able to make good decisions for our beneficiaries.

(2) Split the Money Committee – OHA’s Asset & Resource Management (Money) Committee should be separated into two committees: (1) Budgeting; and (2) Investments. Volunteers should be asked to serve on the investment Committee. I have made this suggestion in the past, but the response has always been, “That ain’t gonna happen, Rowena.”

(3) Trustee Involvement – Trustee engagement must be improved. Some Trustees are passive, nonfunctioning, or afraid of speaking up for fear of being called a “troublemaker,” “micro-manager,” or “hard to get along with.” All Trustees should be allowed to have meaningful participation in planning and not just leave everything for the Administration to decide, as has been the practice for the last ten years until 2012.

(4) Low Risk Investments – OHA should look at investing in U.S. Treasuries, Commodities, and Natural Resources as they are considered low-risk.

(5) Money Manager Contracts – The Trustees should re-examine all contracts with money managers.

(6) Control Spending – The higher OHA’s operating expenses (commitments, salaries, etc.) the more we need to concentrate on how well we do with our investments. The trust fund will suffer if we continue to spend at the rate we are spending now. Intergenerational funds are needed to ensure perpetual funds for the future.

(7) Inflation Funds – These funds reduce the risk of losing your investments in a down market.

(8) Surplus Funds – We should set aside funds for long term, perpetual use. Being a quasi-governmental trust allows us to be more creative in growing a perpetual fund.

(9) Spending Policy – OHA needs to revisit the spending policy and lower its spending rate to 4%. OHA also needs to prioritize its spending and consider separate spending policy for different types of investments. Not prioritizing allows Trustees to fund anything or anyone they favor.

SUMMARY

In summary, the Commonfund Endowment Institute provided me with an excellent investment education. The information shared by Yale and Harvard professors, as well as top economists and other experienced investors and money managers, continues to be very valuable to me as a Trustee. Aloha Ke Akua.