Ka Wai Ola - Office of Hawaiian Affairs, Volume 20, Number 9, 1 September 2003 — Update: OHA Native Hawaiian Trust Fund [ARTICLE+ILLUSTRATION]

Update: OHA Native Hawaiian Trust Fund

£ A no'ai ke aloha iā kākou! /\ Since adopting the manĀ. \.ager-of-managers eoncept in January 2003 and having our fund managers, the Frank Russell Company and Goldman Sachs, take management of the funds under newly adopted investment management guidelines, our portfolio has performed extremely well. The market value of OHA's portfolio has increased by $32 million for the second quarter, whieh ended on June 30, 2003. The manager-of-managers eoncept is one in whieh a designated investments manager (Frank Russell and Goldman Sachs, in our case), is given the responsibility of managing

the day-to-day activities of an investment portfolio. Their guiding document is an investment policy that clearly enunciates the financial goals of the organization, permissible investments and duties of the manager-of-managers. The OHA Board of Trustees still retains the hiring authority over our two managers and we hold them accountable by setting targeted returns that the Board expects to realize on its investments. The major difference between our current portfolio management structure and the previous management structure is that we are now mueh more responsive to changes in the financial markets and changes within individual asset

class managers. In the past, it would take OHA months to process reports and react to recommendations to terminate or select investment managers; and to finally report to the Board for appropriate action. The stock market ean be volatile and therefore requires instantaneous response to take advantage of favorable market positions or to avoid potential losses. For the quarter ending June 30, 2003, the total market value of Frank RusselFs portfolio was $144,190,560.07, up a total of $16.57 million. Similarly, Goldman Sachs ended the quarter at $143,938,545, up a total of $15.41 million for the quarter. The recovery

in the financial markets, particularly in U.S. stocks, during the last quarter was based more on investor emotion stemming from the end of the major conflict in Iraq and interest rate cuts by the Fed rather than actual eeonomie conditions. Believe it or not, the downtrodden technology sector was the big winner last quarter and stocks with a "C" rating from Standard & Poors generated the largest returns (28.6%) of all stock classes, as investors went bargain shopping. Two recent actions taken at the Asset & Resource Management (ARM) Committee will help to See STENDER on page 18

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Oz Stender Trustee, At-large

STENDER from page 17 diversify OHA's portfolio and smooth the overall volatility of the portfolio. On July 26, 2003, the committee voted to approve t.he transition of Goldman Sachs' portion of the portfolio from the "t.raditional" st.ock and bond portfolio t.o one that. includes Real Est.ate Investment Trusts (REITs) and hedge funds. REITs are an at.t.ractive opt.ion because they provide returns siinilar to stocks. However, their returns are derived priinarily from stable real estat.e ineoine, so they are inueh less volatile than st.ocks and have a low degree of correlation t.o stock inarket indices. Hedge funds are not asset classes, but. a eolleelion of investment strat.egies that are actively managed. Because they are so actively managed in an attempt t.o provide superior returns, there is an ext.reinely low correlat.ion between hedge funds and the stock and bond inarket (even lower than RElTs). On August 6, 2003, t.he ARM Coinmitt.ee approved a similar investment. strategy for t.he Frank Russell Company. We are confident that these strategies, along with aggressive management. by Goldman Sachs and The Frank Russell Company, diversify our portfolio and will help to achieve desired financial objeetives. Since our program's budget is based on a percent.age of the market value of our portfolio, we will continue to work t.owards improving our portfolio's values with prudeiit oversight. by C3HA's Board of Trustees. ■