Tag: Marion Higa

State Auditor confirms the lack of vision and foresight within OHA’s leadership

By: OHA TRUSTEE ROWENA AKANA

Source: March 2010 Ka Wai Ola o OHA Column

Back in September of 2009, the trustees were given a draft of State Auditor Marion Higa’s Investment Portfolio Review of the Office of Hawaiian Affairs.  The 48-page report to the Governor and the State Legislature had many critical things to say about OHA’s investment structure and ability to carry out its duties.

Here are just a few of the Auditor’s concerns:

  • The board’s Investment Policy Statement (IPS) is inadequate to ensure potential conflicts and other violations are identified, reported, and resolved.
  • OHA does not have a “whistleblower” policy or a toll-free phone line available to OHA staff and beneficiaries to report potential conflicts, violations, or other issues.
  • OHA does not track general beneficiary concerns or complaints specifically related to the trust.  Complaints are therefore less likely to be reported and OHA cannot ensure complaints are properly received and resolved.

The Auditor also wrote that the Trust’s lackluster performance warrants review of the advisory service’s policies, processes, and performance.

  • The trust’s investments were underperforming for the majority of the review period of FY2004 to FY2008, not only failing to meet its own target earnings goals in nearly half of the quarters, but also falling below average nationwide peer performance in 18 of the 20 quarters reviewed.
  • OHA did not consistently monitor investment compliance during FY2004 to FY2008.  In addition, the investment advisors do not certify quarterly or annually that they are compliant with the trust’s investment guidelines.

On September 8, 2009, Chair Haunani Apoliona responded to the State Auditor and tried to address the concerns the Auditor brought up and what OHA planned to do about it.  It was clear that the Chair wanted the Auditor to soften the harsh report.

However, on October 1, 2009, I received a copy of the State Auditor’s Final Report and, to no surprise to me, nothing substantive was changed.  The Auditor concluded that:

  • While a cursory reading of the board’s response may appear to contradict the Auditor’s findings, in most instances the board challenged secondary points but ultimately acknowledged the major points of the Auditor’s findings.
  • Moreover, many of those arguments misconstrued the facts presented in the Auditor’s report.
  • The Auditor’s final report contains only a few editorial changes based on the board’s response.

On October 2, 2009, an obviously irritated Chair Apoliona personally responded to the Auditor, complaining that she could have gone over the auditor’s comments point-by-point but chose to focus on the “big picture.”

In a memo dated October 23, 2009, I wrote that I agreed with many of the criticisms made by the State Auditor.  Further, Chair Apoliona should focus on making the much needed changes that the State Auditor suggested.  Only then can we move forward as an organization and do better for our beneficiaries.

If you are interested in reading the State Auditor’s report on OHA in its entirety, please visit the State Auditor’s website at http://hawaii.gov/auditor/Reports/2009/09-10.pdf.  Until the next time.  Aloha pumehana.

Auditor’s report: OHA’s money-managers come at a high cost

By: OHA Trustee Rowena Akana

Source: Ka Wai Ola o OHA, June 2005

‘Ano’ai kakou… On January 16, 2003 the Board  hired Goldman Sachs and Frank Russell to serve as OHA’s two financial managers. Each company was given half of OHA’s Native Hawaiian Trust Fund, which at the time amounted to $125,000,000.

In my March 2004 article, I wrote that while both companies made about the same amount of money for us, there was a glaring difference in what they charged us for their services. Frank Russell charged OHA $64,663 for their first quarter of service in 2003, while Goldman Sachs charged us $74,998 – a difference of $10,335. In the second quarter, Frank Russell charged us $200,712 for their services, while Goldman Sachs charged us $244,255 – a difference of $43,543.

While some people may argue that the $53,543 more Goldman Sachs charged OHA (for the 1st & 2nd Quarters) was not a significant amount, I argued that we could have helped many needy beneficiaries with that money.

Not long after my article was published, Goldman Sachs reviewed their fee schedule, and gave OHA an annual savings of $50,000. I can’t say for certain whether my complaints had any impact on their decision, but I was pleased that Goldman Sachs quickly matched Frank Russell’s lower fees.

While OHA’s leadership at the time may have disagreed with me about how high the fees were, I finally felt some vindication when State Auditor Marion Higa came out with her April 2005 audit of OHA. Not surprisingly, she backed up what I had been saying all along. Here are a few findings from her audit:

1. Frank Russell averaged 0.57 percent in fees, in total, for all traditional assets managed, excluding real estate. Goldman Sachs averaged 0.74 percent of the assets it managed, excluding real estate and hedge funds.

2. The average investment management fee paid by all reporting funds (1,032 reporting funds in 2002) was 0.274 percent in 2002. Smaller funds (such as the Native Hawaiian trust fund) with assets below $500 million had higher average fees of 0.351 percent. OHA pays an average fee for investment management and oversight for the trust fund of 0.65 percent.

3. The “manager-of-managers” strategy employed by OHA has led to higher fees than fees incurred by its peers. In addition, OHA’s use of investment advisors to select investment managers, perform due diligence, and monitor the investment managers, has the effect of increasing the total fee, since the total fee represents more than just investment management fees. In other words, we paid less fees under our old financial management plan.

4. If OHA’s passive assets were in line with its peer median, fees would be reduced by 11 basis points, saving OHA more than $300,000 annually.

5. OHA has begun to review the investment management fees being paid, realizing that Goldman Sachs represents a premium cost for its services.

The auditor recommended that OHA continue to evaluate the returns it receives, net of the fees paid, and explore alternative means of investing portions of its portfolio – all of which I will continue to do on behalf of our beneficiaries.

The auditor also noted that OHA should recognize the inherent conflict of interest within the existing manager-of-managers structure and conduct its own evaluation of whether their investments fulfill OHA’s fiduciary duties and achieve prudent investor standards. Due to space constraints, I will have to take this issue up in another month’s column. Stay tuned.

Imua Hawaii Nei…

Legislative Kokua Critical to Fix OHA’s Money Woes

By: Pat Omandam
January 22, 2002

Source: Star Bulletin

The Office lost millions of dollars in revenue from ceded lands. 

If ever the state Office of Hawaiian Affairs needed the kokua of the state Legislature, this is the year.

With no annual revenue from ceded or public trust lands and a legal opinion barring it from distributing any grants, OHA needs a legislative fix for these problems if it wants to fully help Hawaiians.

“I think that the legislators that we’ve talked to have a good sense of where everything is, and I think they’d like to resolve some of these issues,” said OHA Vice Chairwoman Rowena Akana, head of OHA’s legislative committee.

“I look to them to be fair in resolving these very critical issues,” she said. “After all, OHA has been around 20 years. It’s not as if you can swipe us up in one fell swoop.”

At the top of OHA’s legislative package is a way to address a Hawaii Supreme Court ruling Sept. 12 that struck down a state law giving OHA 20 percent of ceded-land revenues collected by the state. The court did not question using ceded-land revenue to better conditions of native Hawaiians but pointed out that particular law had a disclaimer that declared it void if it conflicted with federal law.

The justices said it conflicted with a federal law governing state airport revenue, and ruled the state Legislature must come up with a new law to pay OHA ceded-land revenues.

Akana said the loss of millions of dollars in annual revenue from the state has forced the OHA board to reassess programs and look for ways to downsize so it can preserve its $300 million native trust, the only source of income it has right now.

Despite a state budget shortfall of $330 million this fiscal year, trustees have submitted a bill asking for an interim ceded-land revenue payment of $17 million next year. State Rep. Ezra Kanoho (D, Lihue), a member of the legislative Hawaiian caucus, said Hawaiian lawmakers believe the money is warranted and will work to get it passed this legislative session.

“I think it’s recognized that OHA is due something, and it would be politically correct to come up with a figure,” he said yesterday.

“If not $17 million, particularly in this very difficult financial times, we’ll try to come up with something. What that something is, I’m not sure,” Kanoho said.

Meanwhile, OHA also seeks a waiver from the state procurement laws. A Sept. 25 opinion from the state Attorney General’s Office advised trustees not to release any further grants because those expenditures did not go through the state procurement code’s competitive bid process and therefore may be illegal.

OHA’s grant-making authority was questioned by the state Procurement Office in December 2000 and by state Auditor Marion Higa in April 2001.

As a result, OHA was forced to hold $800,000 in grants last year, which included money to Alu Like Inc. and the Native Hawaiian Legal Corp.

And the wait continues.

“Literally, we can’t give out money away,” Akana said. “It’s so ridiculous.”

OHA trustees also seek legislation so they can join the state Employees’ Retirement System, something they have pushed for several years. The U.S. Supreme Court’s February 2000 decision in the Rice vs. Cayetano case ruled that OHA was a state agency, so trustees can use that to argue it should be allowed to join the ERS.