Ka Wai Ola - Office of Hawaiian Affairs, Volume 10, Number 9, 1 September 1993 — Picking Managers for the OHA trust - the process of "blind" selection [ARTICLE]

Picking Managers for the OHA trust - the process of "blind" selection

(Ed. note: In Ka Wai Ola surveys, many people said they wanted to know what OHA did with its revenue. Last month's issue covered OHA' s operating budget for this hiennium. This article covers how OHA' s Board of Trustees selects money managers to advise them on investment decisions, in keeping with their fiduciary responsibility as trustees. lt was contributed by David A. Kirkeby, an investment consultant at Bishop Trust who has worked closely with the board in the process. Bishop Trust is no longer investment consultant because its acquisition by Bank of Hawai'i, an existing bond manager, held potential for conflict of interest.

by David Kirkeby Bishop Trust The millions of dollars held in trust at OHA are invested with the advice of paid money managers. They advise OHA on all investment decisions, including what stocks and bonds to buy, when to buy, when to sell, how mueh to buy, how mueh to sell, and so forth. Recent news articles may have left an impression that OHA's selection of money managers is faulty. On the contrary, money managers are chosen strictly on merit. As an experienced investment consultant, I've seen numerous selection methods, and OHA's is impartial and fair. OHA's trustees have to decide whom to choose as money managers and how to evaluate the job

they are doing. To do that, OHA retained an investment consultant with the technical expertise to evaluate investment managers, retums of various investments, and the safety of various investments. To ensure that the selecting and monitoring of money managers is fair, Bishop Trust Company was retained to evaluate and interview potential firms and present our recommendations to the Committee on Budget, Finance, and Policy. This committee is key in selecting OHA's financial advisors. The five members of the Committee, headed by Trustee Abraham Aiona and including Trustees Rowena Akana, A. Frenchy DeSoto, Moses Keale, and Kamaki Kanahele, select the money man-

agers to recommend to the full Board of Tmstees. We use a "blind" selection process to ensure impartiality. When we present our evaluation of prospective money management firms to the committee, we identify the firms by letter, e.g. Firm "A," Firm "B," etc. rather than by name. The committee then chooses the best candidates for a "short list," knowing only their qualifications, not their name. The candidates selected are then subject to ratification by the board. OHA is currently in the process of selecting additional money managers to help invest the $130 million recently received from the State of Hawai'i. In anticipation of this process, Bishop Tmst recommended that the Budget and

Finance Committee invite over 30 money managers from Hawai'i and the mainland to submit proposals. At the committee's direction, Bishop Tmst drafted a letter of invitation to the various firms to be signed by chairman of the board but directing all questions to Bishop Tmst. Bishop Tmst evaluated the proposals received and, using the blind selection process, the eom- > mittee shortened the list to eight stock manages and six bond managers. The stock managers made their presentations to the committee in July, the bond managers in early August. The money managers will soon be selected by the committee using the same impartial method.