Getting Back On Target

Kamehameha Schools gets off the revenue rollercoaster

August, 2003

In 2000, after a two-year absence, Kamehameha Schools made a grand return to the Top 250, reporting 1999 gross sales of $839 million, a 150.7 percent increase over 1998. The huge sales increase was the Top 250’s largest by a big margin. The lion’s share of that year’s earnings, some $522 million, came from its investment in Goldman Sachs Group, which had an initial public offering in May 1999.

This year, the pendulum swung the other way for Kamehameha Schools with the institution earning just $153.9 million in 2002, down from $1.01 billion the year before. The 84.8 percent decrease was the biggest drop reported in the Top 250.

“The decrease was a combination of two things,” says Michael Loo, vice president for finance and administration. “First, in 2002 we had a large amount of gains from the sale of Goldman Sachs stock. Second, our major source of revenue is from our endowment whose performance was reflective of the general conditions in the investment environment, meaning the stock market.”

Biggest Sales Drop
Line of Business: Private, nonprofit 
charitable educational trust

2002 Top 250 Ranking: 8
2001 Sales: $1.0 billion
2003 Top 250 Ranking: 39
2002 Sales: $153.9 million

Kamehameha Schools’ revenue roller coaster ride won’t likely happen again. According to Loo, the institution has been moving away from concentrated investments, which potentially had a higher profit but also had a higher risk. Instead, the school has been working toward a more diversified endowment portfolio with revenue goals set by policy, a much more conservative and consistent annual return of 5 percent plus inflation. This investment strategy is closely tied to the school’s new spending policy, which is 4 percent on average of the market value of the endowment. Last year, Kamehameha spent $223 million on education, a record amount.

How does 2003 look for Kamehameha Schools? With a few more days left in the fiscal year when we spoke with him in June, Loo couldn’t say for certain, but he did suggest taking a look at the stock market.

“It’s hard to tell you if it’s going to be 2001 or 2002,” says Loo. “But in 2003, the equity markets have been mixed so our revenues will likely follow those trends.”

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David K. Choo