Tag: Native Hawaiian Trust Fund

Transition: Change doesn’t have to be painful

‘Ano‘ai kakou.  As you may have heard through the media, this has been a turbulent few months for OHA.  It is heartbreaking that OHA cannot be focused on what our beneficiaries are demanding – assistance with housing, education, and health.

Change is never easy, but I want to state for the record that all of the initiatives I fought for in the past two months were for one purpose only:  To protect the Native Hawaiian Trust Fund, now and into the future, for our beneficiaries.  If my first initiatives were passed by the Board, our beneficiaries would have seen immediate change for the better.  We were so close.

By a majority vote of the Board we wanted to negotiate a buyout of the CEO/Administrator/Ka Pouhana’s contract.  We felt that OHA could do so much more for our beneficiaries if we could change the course of where the Administration was headed.  A buyout would have been the least painful way to bring about that change.  The CEO would receive a negotiated sum of money and his reputation would be intact since we wouldn’t have to air any “dirty laundry” in the public.  But as everyone who read the newspaper or watched the evening news lately knows, it didn’t work out that way.

On a positive note, Trustee Keli‘i Akina’s proposal to conduct a more comprehensive audit of OHA, which will look into things that the three mandated OHA audits don’t cover, looks like it will become a reality.  On February 8th, the Resource Management Committee formed an Advisory Committee to make recommendations to the Board on the scope of a proposed financial audit and management review.  Our beneficiaries should be proud because this is only coming about because you demanded it.  I look forward to the audit and finally answer the one question I’ve been asking nonstop for the last decade:  Where is all the money really going?

On February 9th, the Board elected Colette Machado as the new Chair of the Board of Trustees.  While she has been part of a faction that has no love for my demands for fiscal accountability, I know that she will do her best to be fair.  I will definitely to my part to help her move OHA in the right direction again so that the Board can make a real impact in the lives of our beneficiaries.

However, I was disappointed to see that Trustee Machado was able to let former Trustee Haunani Apoliona use her column space in the February Ka Wai Ola as her soapbox to attack me, while my original February article was banned by the CEO because he felt it was too critical of the Administration and the Trustees that support him.  I’ll let you, the readers, be the judge of whether that is favoritism or not.

Trustee Hulu Lindsey remains Chair of the Resource Management Committee, so we can expect the new leadership structure to honor our beneficiaries’ call more transparency at OHA.

OHA must be an agency that treats our beneficiaries equally and it’s now up to the new leadership to make sure there is an even playing field at OHA.  Most of the OHA Staff just want to do their jobs and I ask that the general public withhold their judgment during this time of change.  Rome wasn’t built in a day and we cannot change OHA in a few months.

Mahalo nui loa and God bless you all.

Broken Promises by the Legislature

By: OHA TRUSTEE ROWENA AKANA

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 ANOTHER NOTE:

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

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.

OHA Budget: It’s time to bite the bullet

By: TRUSTEE ROWENA AKANA

Source: February 2009 Ka Wai Ola o OHA Column

`Ano`ai kakou…  On January 6th, OHA’s administration briefed the State House and Senate’s money committees about OHA’s budget and funding needs for fiscal years 2010 and 2011.  After listening to the questions that the legislators asked our administrator, I couldn’t help but feel like I’ve heard them all before.

Back in August of 2008, I wrote about my concerns regarding the health of OHA’s portfolio and our out-of-control spending.  At the time, our Native Hawaiian Trust Fund portfolio had lost 10% of its value (approximately $39 million) and national consumer and prognostic indicators were saying that investors should have at least 20% of their investments in cash that can be liquidated and moved quickly.  Unfortunately OHA had less than 10% or $25 million of its portfolio in cash at the time.

I also wrote that according to a June 2008 report from one of our money managers, global equity markets had fallen by more than 8%, with US and European equity markets returning -8.4% and -11.7% respectively.  As of July 9, 2008, the estimated preliminary return for their share of OHA’s portfolio in the month of June was –4.95% compared to benchmark performance of –4.48%.

They also stated that the growth outlook for the US economy remains weak, as increased unemployment, a weak dollar, and further pressure on the financial markets contribute to expectations of higher inflation over the next year, with expectations beyond that more restrained.  In other words, we were warned.  Given all of the bad news, it was more important than ever to bring our spending under control.

On October 16, 2008, right before the November election, the board approved a $40,682,161 budget for Fiscal Year 2010 and a $39, 675,268 budget for Fiscal Year 2011, with no reductions.  The board also supported an increase in spending all the way through 2012.    In other words, these realigned budgets are being approved using money that we have yet to receive and probably will not receive given that our spending policy is tied to our three-year return on investments.  Since that time, our Native Hawaiian Trust Fund has fallen from $430 million to $312 million.  It is very difficult to defend and justify a budget that has expanded by over $20 million over the past six years to the legislature or anyone else.

At present, our budget is approximately $41 million.  Add to that all of the recent budget realignments and commitments made well into the future and the budget will probably climb to well over $50 million a year.

It appears that the whole world is caught up or affected in some negative way by America’s recession.  Economists say this recession will probably last through 2010.  That said, I found it embarrassing to sit through OHA’s budget briefing to the state legislature and listen to Senators and Representatives ask why OHA had not made any cuts to its budget.

Here are some of the suggestions and questions asked of us:

  • Are you willing to cut salaries if necessary?
  • Will you be able to make the necessary reductions to your budget if needed?
  • Where are OHA’s priorities for spending?
  • How much of OHA’s budget is committed to housing and health?
  • What did the Administrator mean when he said that he had spent the last seven years cleaning up OHA programs?
  • How much was being spent on Kau Inoa registrations and OHA’s Washington D.C. office?

There were many more questions but I have not included them because of space limitations.

In this New Year of 2009, I still have great hopes that our board will come together and do what is best for our beneficiaries despite the fact that we may all differ in our opinion as to what must be done and how.  This can only occur if ALL of us look at the reality of the situation that confronts us.  We cannot, in this economy, continue to spend the way we have in past years.  We must also convey this message to our beneficiaries.

When one of our money managers late last year cautioned us about the stock market volatility, they suggested that we should consider reducing our spending policy from 5% to 3% during these uncertain times, until things get better.  I think it’s obvious that the time has come for us to take the advice of the professionals that we hired and “bite the bullet.”

It is understandable that the legislature is critical of OHA’s lack of spending restraint.  They basically as much as told us that, if you haven’t made any sacrifices and we have, why should we give you any more money?  At least that was my impression of their message to us.  Criticism like, “You obviously have enough to get by” only makes us appear arrogant.

Neither the legislature nor anyone else should have to tell us that belt tightening is necessary.  This is the responsibility of our board.  It is important to note that OHA pointed out to the legislature that the $3 million that we receive from the state helps to serve the less than 50% Hawaiian beneficiaries that we are also mandated to serve.  Aloha Ke Akua.

Auditor’s report: OHA needs an outside consultant to watch over money mangers

By: OHA Trustee Rowena Akana

Source: Ka Wai Ola o OHA, July 2005

‘Ano’ai kakou… On January 16, 2003 the Board of Trustees voted to hire two investment companies, Goldman Sachs and Frank Russell, to handle all of OHA’s investment decisions. I abstained from the vote because I felt that it would be dangerous for the Board of Trustees to give up their direct oversight over the Native Hawaiian Trust Fund.

I had further doubts after I read the contracts OHA’s administration signed with Goldman & Russell. Our past contracts specifically stated that OHA, its trustees, and employees would be protected from all actions, suits, claims, damages, and expenses that arise out of a contractor’s errors, omissions, or acts. As you may recall, I wrote in my August 2003 article that since the contracts OHA signed with Goldman and Russell had no such language, OHA trustees are liable for any mistakes that they make, even though we don’t have any direct control over investment decisions.

In March of 2003, OHA hired R.V. Khuns & Associates, Inc. to come up with recommendations for OHA’s Investment Policy. One of their recommendations was that the Board should hire a separate and independent consultant to monitor both Goldman and Russell. I strongly fought for this when it was discussed at the Board table. Unfortunately, the budget committee rejected the idea.

While the budget committee may have disagreed with R.V. Khuns & Associates’ recommendation, State Auditor Marion Higa supported the idea of an independent consultant in her April 2005 audit of OHA. Here are a few of her findings:

(1) OHA has failed to create an independent function to oversee investment advisors. According to the auditor, basic things such as performance reporting, ensuring compliance with guidelines, and risk management were not being done because OHA doesn’t know how. The auditor wrote that OHA doesn’t have enough knowledge, experience, and expertise when it comes to overseeing investments. She stressed that OHA needs to hire someone (either in-house or an outside consultant) with experience in institutional investment oversight to make up for this deficiency.

(2) OHA’s lack of a standard report format has resulted in inconsistent reporting by the advisors. The auditor wrote that OHA did not create a standard format for Goldman and Russell to report how they were investing our money. The auditor said that this was because OHA did not know what information it needed to properly evaluate them. The auditor also pointed out that it was fundamentally flawed to depend on Goldman and Russell to decide what should be reported. Goldman and Russell are just as liable as OHA trustees for any losses (that come from not following OHA’s investment policy) so why would they report any violations to OHA? To solve this problem, the auditor recommended that OHA consider hiring outside experts to design the performance reports.

(3) Investment advisor compliance with certain guidelines cannot be verified. According to the auditor, OHA can barely make sure that Goldman and Russell are following OHA’s investment policy because we aren’t getting enough information from them. OHA doesn’t even have the computer software needed to screen important information. The auditor recommended that, for OHA’s protection, both Goldman and Russell should be required to sign a disclosure statement, on a regular basis, saying that they are following OHA’s investment policy. I believe her recommendation is added confirmation that the contracts our administration signed with Goldman and Russell did not contain proper safeguards for OHA.

I hope this proves, once and for all, that OHA needs an independent consultant to watch over our two investment managers.

Imua Hawaii Nei…

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…

Which is it? Build the Trust for the New Nation or Spend it All?

By: OHA Trustee Rowena Akana

Source: Ka Wai Ola o OHA, June 2004

‘Ano’ai kakou… I hate to admit it, but the current leadership of OHA has me a bit confused. I’m sure you have heard Chairman Apoliona say on many occasions that OHA is a “temporary” organization that will someday be dissolved and its assets transferred over to the new Hawaiian Nation. So her position is clear – OHA is temporary and its money will go to fund the new Hawaiian nation.

Here’s where everything turns as clear as mud. In April Trustee Stender, the chair of her money committee, informed the Trustees that he has asked for a legal opinion that will allow OHA to spend more of the Native Hawaiian Trust Fund. OHA currently has a spending limit that prevents any group of Trustees from spending the Trust like drunken sailors.

I’m sure that handing out a check to every one of the hundreds of organizations that are asking for grants would certainly make OHA very popular, but what about the long-term health of the Trust? We have carefully rebuilt the Native Hawaiian Trust Fund to over $300 million. I would hate to see it evaporate again in a shortsighted spending spree.

And as for how the Trust funds are spent, let’s not forget that four years ago OHA conducted a survey that clearly stated the beneficiaries wanted the Trustees to focus on four priorities – (1) Return of the land; (2) Education; (3) Housing; and (4) Health. The Board has not taken any action to change our focus on these areas and Trustee Stender should keep that in mind before making any decisions on his own.

I also question why the present administration can’t just follow established procedures and take the matter up in an open Board meeting. Unilateral decisions made by the Chairman and the Budget Chair must stop! All that’s needed to change the spending limit is six votes. If OHA’s leadership is too afraid to take the matter up in public at an open Board meeting, maybe that should tell you something.

I wrote several letters to the law firm that is drafting the legal opinion for Stender and shared my strong concerns about breaking the Board’s spending limit. They responded that Trustee Stender has every right to request such an opinion. I wasn’t surprised by their reply since they want to get paid for it. What is shocking is that the spending policy is not the only thing they are looking at. Trustee Stender also wants to know whether it’s even appropriate to build the Trust at all!

To even question whether we should grow the Native Hawaiian Trust Fund is just ludicrous. People like Thurston Twigg-Smith would like nothing better than to see the Trust disappear. And it’s not just the anti-OHA people either. Even our “friends” in state government are trying to cut the money coming into OHA. Governor Cayetano already cut OHA’s airport revenues and if the current state legislature had its way, OHA would probably get a lot less than it does now.

So which path will OHA’s leadership take? Will it be Chairman Apoliona’s “temporary” OHA that will turn over its assets to a new Hawaiian Nation or Trustee Stender’s OHA, which spends freely and shrink the Trust? I hope they realize that it will be difficult to do both.

My prediction is that Chairman Apoliona will flip-flop on her position and go along with Trustee Stender, unless of course, she gets enough calls telling her to do otherwise. I encourage all of you who share my concerns to call her and ask where she’s leading us.

I will continue to fight, by every means necessary, any attempt to allow the shortsightedness of OHA’s current leadership to endanger the Native Hawaiian Trust Fund or shortchange the coming Hawaiian Nation.

Imua Hawaii Nei…

Reaching out to Hawaiians on the mainland

By: OHA Trustee Rowena Akana

Source: Ka Wai Ola o OHA, April 2004

‘Ano’ai kakou… On March 6-7, 2004, OHA sponsored a successful Hawaiian governance event in Las Vegas. The affair featured OHA’s Hawaiian Registry Program; workshops on Hawaiian culture, genealogy, and history; and a “Kau Inoa” registration drive. Kau Inoa is a separate program from OHA, and is the first step in identifying indigenous Hawaiians who want to be a part of the formation of a Hawaiian governing entity.

We have now established many valuable contacts within Nevada’s Hawaiian community, estimated to be 80,000 strong, and have made an important contribution to our goal of registering 100,000 Hawaiians nationwide.

This event would not have been possible without the hard work and dedication of the following OHA staff and volunteers:

* Administrator Clyde Namu’o who strongly supported the event from the beginning. I commend the Administrator for the latitude he afforded staff to explore new territories and gain new skills. His consistent positive attitude and encouragement of staff made the event a true pleasure.

* Public Information Officer Manu Boyd, who conducted workshops on hula, ka’ao, genealogy, and Hawaiian history. His command of the Hawaiian language and his musical talent are an invaluable resource to OHA.

* Luci Meyer, who conducted workshops on mo’oku’auhau (genealogy). I was impressed by the quality, depth, and insight of her presentations.

* Staff members Jennifer Chiwa, Lani Hoomana, Ruby McDonald, Gladys Rodenhurst, and Francine Murray.

* Las Vegas Volunteers Jeannie Wong, Ransen & Lehua Borges, Ladd Haleloa, Bruce Willingham, Lucille Calario, Lorna Andrade, and Paul Meyer.

* Special thanks to the Makaha Sons, Moon, John and Jerome who performed in concert and virtually assured a huge turnout.

This experience has left me very encouraged about coordinating future events and activities. I also appreciate Trustees Waihe’e, Dela Cruz, and Apoliona for making the trip and sharing their mana’o.

On another note regarding the Native Hawaiian Trust Fund…

Trustee Mossman wrote in his article last month that he did not believe OHA has ever been in a better financial position and that it was all thanks to Trustee Stender. Before we begin to sing the praises of someone, perhaps we should first put things in their proper context.

OHA’s portfolio was over $400 million in 2000 and then took a nosedive in the following year to $250 million. Who was the chair of the Budget & Finance committee for most of that time? You guessed it, Trustee Stender. I pleaded with Trustee Stender for months to stop the bleeding, but nothing happened. OHA’s Chief Financial Officer finally came up with the idea of hiring “managers-of-managers” to do our investing. This was finalized by February 2003, but and by then, the damage to the Trust had long since been done.

The new managers-of-managers, Goldman Sachs and Frank Russell, make all of our day-to-day investment decisions and choose which money managers to hire. The Board’s role now is to simply set the investment policy and listen to quarterly report presentations.

There is no doubt that the growth of the Trust has more to do with our two manager-of-managers than any particular Trustee. The problem now is that OHA is forced to pay higher fees for Goldman Sach’s services even though they have consistently underperformed the Frank Russell Group.

While the total Native Hawaiian Trust Fund is still far shy of the $400 million OHA once enjoyed in its heyday, at least it is growing again.

Imua Hawaii Nei…

OHA paying more for the same service

By: OHA Trustee Rowena Akana

Source: Ka Wai Ola o OHA, March 2004

`Ano`ai kakou… On January 16, 2003 the Board hired Goldman Sachs & Company and Frank Russell Company to serve as OHA’s two “Manager-of-Managers.” Each financial manager was given half (50% percent) of OHA’s Native Hawaiian Trust Fund, which amounted to $125,000,000.

Before we voted to hire the two companies, I asked Trustee Stender whether we should give the two money managers a one-year limit. Trustee Stender thought that one-year would do and the Board approved hiring both companies for a one year period after their contracts were executed.

Both contracts were signed on February 13, 2003 and it is now time to evaluate their performances and decide whether to keep them and/or make some changes.

Instead of boring you with pages of financial comparisons such as “Market Valuation versus Strategic Benchmark” or explaining what a “hedge fund” is, I’ll get straight to the bottom line: 1) How much money did OHA’s two financial managers make, and 2) How much did it cost OHA for their services.

According to a memo dated January 22, 2004 from OHA’s Treasury department, Frank Russell Company “continues to slightly outperform[s] Goldman Sachs Company in total portfolio market value. At the end of November, the difference was over seven hundred thousand dollars (0.51%).”

A recent memo dated February 10, 2004 states that Goldman Sachs managed to increase their original $125,000,000 to $160,500,000 by December 31, 2003. During the same period, Frank Russell Company managed to do slightly better with $161,000,000 – a difference of $500,000.

Both companies did well during the nine-month period and they increased OHA’s portfolio by over $35,000,000 each. Our Native Hawaiian Trust Fund now stands at a combined grand total of $321,500,000 (as of December 31, 2003). There is now hope that we can once again reach the $400,000,000+ levels we had back in 2001.

While both companies made about the same amount of money for us, there was a glaring difference in what they charged us for their financial services. For example, according to the same 1/22/04 memo mentioned earlier, Frank Russell Company charged OHA $64,663 for their first quarter of service in 2003, while Goldman Sachs Company 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. In the third quarter, Frank Russell charged us $217,087. Third quarter fees from Goldman Sachs were not available in the memo.

While some people may argue that the $53,543 more Goldman Sachs charged OHA (for the 1st & 2nd Quarters) is not a significant amount, I would argue that we could have helped many needy beneficiaries with that money. We could have given 53 Hawaiian families a $1,000 grant and still had money left over.

When you look at the bottom line, based on their performance as of December 31, 2003, Frank Russell Company made $500,000 more for OHA than Goldman Sachs and charged us $53,878 less for their services. Frank Russell did a better job and charged us less for it.

Unless something drastic happens from January 1, 2004 to February 13, 2004, I’ll be arguing to have Frank Russell Company manage OHA’s entire Native Hawaiian Trust Fund. It only makes sense. Why pay more for less? I would, however, consider keeping Goldman Sachs onboard if they lowered their fees.

If you feel as strongly as I do about protecting the Native Hawaiian Trust Fund into perpetuity, I urge you to call the other eight Trustees and share your mana’o. Let them know how you feel about defending an important resource for our Hawaiian people.

Imua Hawaii Nei…

Native Hawaiian Trust Fund Update

TRUSTEE ROWENA AKANA

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!