Ka Wai Ola - Office of Hawaiian Affairs, Volume 11, Number 7, 1 Iulai 1994 — OHA: learning the hard way [ARTICLE+ILLUSTRATION]

OHA: learning the hard way

by Rowena Akana Trustee-at-large OHA's investment portfolio lost $5.5 million during the first three months of 1994. Nine firms manaeed $153 million in

revenues from the ceded lands trust. Of those nine, only one made a profit, $6,000. The other eight eollectively lost as mueh as 3.5 percent of the money we gave them. This is your money and now it is gone. What went wrong? It would be easy, and not inaccurate, to blame the hemorrhage on the stock market,

whieh dropped 3.3 percent during the same time. However, our loss was worse than the market's — even with the help of professional money managers. This was not sim-

ply a paper loss. Onee the money managers sold some of our depressed stocks, OHA lost the ehanee to bounce back even if the market did. The goal of any trust is to make revenues exceed exDenses.

It is the duty of the board to monitor how the money in our portfolio is managed. To that end, the budget and finance committee chairman brought two prospects before his eommittee to demonstrate how they would watch our investment managers. The inilial analysis from one prospective money monitor shows our investments are under-performing.

OHA's portfolio assets are hedged among stocks, CDs, treasury bills and so on, with loeal and Mainland portfolio managers. One of these managers, investing in

technology, fossil fuels and pharmaceuticals, lost a whopping $1.7 million of the $12.8 million entrusted to its care. Another firm lost $ 1 .2 million, or 9.5 percent of the money we gave it. It is also our duty to plan for the use of this money. The board has yet to make these plans. One speaker from Bishop Estate explained why such plans are fundamental to OHA's success as a trust. There are basic fiduciary responsibility and investment standards that govern the protection, development and management of a trust corpus and ineome. The first, he explained, was "a clear understanding and establishment of the purpose, goals and program requirements of the trust in terms of operational and capital expenditures." It is vital to OHA's success that the trustees create a document to detail what programs will receive what amounts, for how long. and to what end. One of our agency's missions is to seek and coordinate funds for Hawaiian programs. We now have some funds, but we have not coordinated them with our programs. Unfortunately, we haven't coordinated our programs, their directions or destinations either. It's not that the board is

planning to fail, it's just failing to plan — a fact some on the board continue to deny. OHA's master plan needs to be updated - desperately. Our functional plan does little to guide us in these matters, even when trustees follow it. Without this plan, more losses of last quarter's magnitude are possible. That should eoneem all of us. What should eoneem us more is how the Board of Trustees oversees the investments. The board has never discussed a longrange or short-range plan on how to spend the money. (This is distinct from haphazard votes for certain expenditures. The Education Foundation, a noble gesture, has yet to be funded according to plan. It will only be funded with money from the interest of our portfolio, thanks to a five-to-four majority vote from the board. The interest on a loss of $5.5 million is zero. Zero does not fund a lot of scholarships.) If more trustees don't take an active role in reviewing and managing OHA's investment portfolio you ean expect more of the same. (Copies of all research materials for this article may be obtained by calling my office at 594-1868.)