Closing out 2013 and welcoming in 2014

`Ano`ai kakou… Happy Year of the Horse! The following are some of the issues that I will be focusing on in 2014.

Kaka’ako Makai

During the 2012 legislative session, Senate Bill 682 proposed to add value to two parcels of our lands in Kaka’ako Makai by giving OHA the right to develop residential structures on them. This would have added significant value to our properties and provided much needed revenue for our Nation. While the bill had the support of key senators, it failed to pass. OHA now needs lay down the groundwork to pass a similar bill in the upcoming legislative session while also working towards a Master Plan for our Kakaako Makai properties.

Kewalo Basin

A continuing concern are the proposed “finger piers” that will front our property at Kewalo Basin. The finger piers are threatening to seriously reduce the value of our land and take away OHA’s right to develop our own piers. However, the HCDA continues to refuse any proposals to change their plan or to make concessions.

OHA must continue to object to the current finger piers design. If HCDA goes forward with signing any lease, OHA should consider suing. Given the major contests coming up in the 2014 elections, perhaps there are other reasons for HCDA’s reluctance to work with OHA. Developers have contributed large sums of cash to gain the support of key candidates who can help them with their development plans. We should all take this into consideration before we cast our votes.

OHA Audit

Also in 2013, the State Auditor came out with her OHA Audit (to see a copy visit: http://files.hawaii.gov/auditor/Reports/2013/13-07.pdf) that harshly criticized the trustees’ vote to authorize the purchase of the Gentry building. The action also had serious consequences for OHA’s ability to invest in community projects and has opened us to criticism by the state legislature.

In my opinion, OHA could have avoided much of the criticism if we had received better legal counsel from attorneys who have worked with OHA for a long time. I believe it is time for Trustees to seriously evaluate the quality of their advice.

Looking to the Future in 2014 with International Outreach

Last year, I joined the Board of Directors of the American Indian Alaska Native Tourism Association (AIANTA), which provides Native Hawaiians a great opportunity to network with American Indians and Alaska Natives and to develop programs that will help sustain and strengthen our cultural legacy.

In March 2014, AIANTA will sponsor a pavilion at the Internationale Tourismus-Börse (ITB) Berlin — the world’s leading travel and trade fair — in Germany. ITB provides Native and Tribal tourism departments the opportunity to showcase their cultural programs and tour packages to the multi-billion dollar European tourism market.

I am optimistic about presenting tourism from a Hawaiian perspective. Native Americans and Alaska Natives are successfully doing this and providing economic development for their tribes and also contributing to their states’ tourism dollars. ITB Berlin will give our beneficiaries the opportunity to make valuable contacts with international travel organizations, media and tour operators.

Happy New Year!

I look forward to 2014 and am optimistic about OHA’s future. I wish all of you the very best Holiday Season filled with joy and good health. May God’s Blessings be upon each of you and your families. See you next year!

State Ethics Commission Bungled Investigation

`Ano`ai kakou… On July 17, 2012, I asked the State Ethics Commission’s Executive Director to investigate whether a trustee’s vote to approve OHA’s purchase of a property being financed by Bank of Hawaii, for which she also serves as a Director on their board, was a violation of HRS §84-14 – Conflicts of interests, which states that no employee may take any official action directly affecting a business in which the employee has a substantial financial interest. This includes elected state board members, such as OHA trustees.

Despite my numerous attempts to follow-up, nothing happened for ten months. Then, on April 13, 2013, the trustee being investigated announced that she received letter from the Commission stating she did nothing wrong. I never received a response to my original complaint.

Just when I thought this was all going to be brushed under the rug, the Auditor of the State of Hawaii came out with her September 2013 Report No. 13-07 (to see a copy of the report visit the Auditor’s Website at: http://files.hawaii.gov/auditor/Reports/2013/13-07.pdf) and harshly criticized the trustees’ vote to authorize the purchase of the Gentry building.

On pages 20-21 of Report No. 13-07, the State Auditor wrote:

“Trustees’ vote in favor of Gentry acquisition violated OHA investment policy

The Office of Hawaiian Affairs’ Native Hawaiian Trust Fund Investment Policy provides that if a trustee has a personal involvement with any direct investment transaction, or even any perceived conflict of interest, the trustee must disclose the involvement immediately and be recused from both discussions and votes on the transaction.

Contrary to this policy, we found that the board’s decision to purchase the Gentry Pacific Design Center building, a $21.4 million property in Iwilei, hinged on the vote of a trustee who is also a member of the board of directors of the bank that offered the best financing for that acquisition.”

The Auditor concluded that:

“… the trustee’s actions may damage OHA’s reputation and undermine the agency’s credibility with beneficiaries and the public.”

The action also had serious consequences for OHA operations. We were surprised to learn on April 12, 2013 that the loan we got from Bank of Hawaii was not a “secured” loan and that it had to be backed by OHA Trust dollars. OHA’s Hawaii Direct Investment Policy requires that any “recourse” in connection with a loan be counted towards the $25 million maximum allocation. As a result, we can’t make any more investments in Hawaii until the acquisition of OHA’s corporate headquarters is complete.

While I will not comment on the competency of the State Ethics Commission’s investigative staff members, it boggles my mind that after a ten month investigation, they couldn’t find anything wrong with the trustees’ vote to purchase the Gentry building.

I believe the State Ethics Commission’s mishandling of the investigation sends the wrong message to other elected officials who think they can blatantly flout Hawaii’s conflict of interest laws. It also gives the negative perception that the Commission is simply there to protect the status quo instead of aggressively assuring clean ethics in the State of Hawaii.

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.

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…