Why OHA invested in geothermal


By MARK HEE

Recently the trustees of the Office of Hawaiian Affairs voted to invest in Hu‘ena Power, the development arm of Innovations Development Group. IDG’s investment, in dialogue with the community over the past two years, played a critical part in OHA’s decision to take a private equity stake in Hu‘ena Power.

Some have compared this to the activities of a venture capital firm and have expressed surprise that OHA would invest in this way. The comparison reflects a lack of understanding of what OHA did — and the surprise is misplaced because this investment is exactly in line with OHA’s mission.

The $600,000 of the $1.25 million committed to Hu‘ena Power represents one third of 1 percent of OHA’s investment portfolio — a small step for OHA, but a huge step towards a better future for Native Hawaiians and the people of Hawaii.

Unlike venture capital firms and angel investors who put money on the probable success of early stage technology, OHA bought a stake in a specific project with a mature technology. Private equity has outperformed equity and fixed income for decades. Why else would such established institutions as Yale, Harvard and Stanford put 30 percent to 40 percent of their entire endowment in alternative investments, including private equity?

Everyone needs to understand that our geothermal resources are, by law, owned by Native Hawaiians and the public at large. These assets will get developed. OHA said NO to being a bystander and YES to being a participant by investing in a Native Hawaiian company that has the experience, the world-class partners and access to the best technical expertise to develop geothermal in a way that is earth-friendly and people-friendly.

There is no question that we need to do more to reduce our dependence on imported oil. Rising oil prices translate into punishing electricity rates. That only helps keep our people poor and deny our children opportunities for a better life. Geothermal is the only firm power option. That’s why this vote goes directly to the heart of OHA’s mission: protecting the future of beneficiaries for generations to come.

OHA did not act in a vacuum. It abided by its own investment policy statement and it is governed by the Federal Uniform Prudent Investment Act. This act covers 46 states, including Hawaii, and applies to all endowments and trusts, including non-profits. These frameworks ensure that OHA stays true to policy and weighs the risks. They require the trustees to demonstrate how the investment is managed, and how risk is mitigated. Expert advice must be sought and the process must be documented. Independent experts with strong credentials reviewed the investment carefully and said, “Yes: Investing in geothermal development makes sense.”

OHA’s code of ethics requires conflicts of interest to be disclosed immediately and trustees with such conflicts recused from discussions and votes on that investment. Trustees must comply with the Standard of Conduct (Chapter 84) of the Hawaii Revised Statutes and code of ethics in the OHA bylaws and the guidance in the OHA employee handbook and Board of Trustees executive handbook.

The “Prudent Person or Prudent Man Rule” standard dictates that: “Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived.”

Hu‘ena Power met all of OHA’s criteria and mission pertaining to investments. OHA’s investment should not be confused with grant-making. Millions in grants have been made for Kau Inoa, the Kauai Poi Factory, the Akaka Bill and others. It was the earnings on the investments that made these and other grants possible. Revenues to the trust from current geothermal energy production are already being applied to meet the needs of beneficiaries.

Let’s stop the uninformed attacks. OHA should be commended for taking an important step forward. Let’s become masters of our energy future.

Mark Hee was senior vice president for Morgan Stanley from 1990-2005. He served as the lead investment consultant to the Office of Hawaiian Affairs. He is a graduate of Kamehameha Schools and the University of Hawaii.

 

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