Ka Wai Ola - Office of Hawaiian Affairs, Volume 21, Number 3, 1 Malaki 2004 — OHA paying more for the same service [ARTICLE+ILLUSTRATION]

OHA paying more for the same service

£ A no'ai kākou. On January /\ 16, 2003, the Board hired Ā. A.Goldman Sachs & Company and Frank Russell Company to serve as OHA's two "Manager-of-Managers." Eaeh financial manager was given half (50 percent) of OHA's Native Hawaiian Trust Fund, whieh 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 oneyear would do, and the Board approved hiring both companies for a one year period after their eontracts were executed. Both contracts were signed on Feb. 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 mueh money did OHA's two financial

managers make, and 2) How mueh did it cost OHA for their services. According to a memo dated Jan. 22, 2004, from OHA's Treasury department, Frank Russell Company "continues to slightly outperform Goldman Sachs Company in total portfolio market value. At the end of November, the difference was over $700,000 (0.51 percent)." A recent memo dated Feb. 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 differenee of $500,000. Both companies did well during the nine-month period and they increased OHA's portfolio by over $35,000,000 eaeh. 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 ean onee 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 differenee 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 first and second 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 Jan. 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 on board 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 eall the other eight Trustees and share your mana'o. Let them know how you feel about defending an important resource for our Hawaiian people. I mua Hawai'i Nei... For more information on important Hawaiian issues, eheek out Trustee Akana's website at www. rowenaakana.org. ■

Rowena Akana

Trustee, At-large