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:

  1. 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.
  2. 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.
  3. Board Leadership can also engage all of its members by giving Trustees meaningful work and allowing them to gain further financial experience;
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.


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.

Broken Promises by the Legislature


Source: April 2010 Ka Wai Ola o OHA Column

There is no question that from the Territorial Government to the present, the state has consistently mismanaged our ceded lands.  Politicians have leased thousands of acres to their friends for as little as a dollar a year through insider deals.  A previous Governor even suspended landing fees at the airport, which sits on ceded lands, for two years to allow airlines to bring in more tourists.  We all know that didn’t happen.  And they wonder why they don’t have any money!

These same politicians are now forced to come up with “creative” ways to supplement their shortfalls during these tight economic times such as legalized gambling, raising taxes and, worst of all, selling ceded lands.  They wouldn’t have to look far if they simply managed our ceded lands properly.

The state’s failure to manage ceded lands should not be used as an excuse to sell a resource that is so critical to the future success of our future nation.  Just a year ago, state legislators agreed with us and voted to preserve ceded lands.  Act 176, 2009, established that the state cannot sell any ceded lands unless they get a two-thirds majority vote in both the State House and State Senate.  Now they’re going back on their word and trying to sell ceded lands.  How can we trust these people?

This election year, let’s elect responsible leaders who will make the tough decisions needed to get our economy out of the toilet.  We do not need more politicians to think of even more creative ways to tax us or squander our resources.


On February 10, 2010, OHA’s money committee decided to stop investigating whether we should keep or replace our investment managers.  According to the minutes of the meeting, after considering all factors involved, all trustees present at the meeting came to a consensus that our staff would “cease all due diligence efforts at this time and retain the current investment advisors.”

The decision to postpone the evaluation of our investment managers is very shortsighted [I was not at the meeting and did not join the discussion].  It disregards the criticisms that the State Auditor had in her recent audit regarding OHA’s management of the trust.  It also disregards what Trustees Lindsey, Mossman, Heen, Stender and I learned from the Mercer Investment Forum on January 28-29, 2010 in San Francisco. 

The Forum stressed the need for investors to look for managers who are specialized in each field of investment.  More importantly, they recommended that we evaluate whether our managers are able to handle the new requirements of “opportunistic” investing.

Trustee Stender later informed the trustees that our fiscal staff would continue to monitor the top five money managers we are considering and bring this matter back to the committee within a year. 

One year is long time to wait.  At the very least, our staff should report to the committee on a quarterly basis to keep us informed.  In these volatile times, we do not have the luxury to “take our eyes off the ball” for such an extended length of time.

Until the next time.  Aloha pumehana.

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


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  Until the next time.  Aloha pumehana.