BOMA-Hawaii: Asset Management: Where do you want to be? September 14, 2010

1. BOMA-Hawaii: Asset Management: Where do you want to be? September 14, 2010 Kalei Cadinha-Pua’a President & COO

2. Agenda • The History of Asset Allocation • Game Changers • Asset Management: What’s Next • Q & A 2

3. The History of Asset Allocation 3

4. Investment Philosophy – Our ‘360 Performance Program’ Equivalent Timely asset allocation is key to controlling risk and achieving returns • Instead of investing based on past results, look ahead for good values among various asset classes • Flexibility in investments should be sought, not shunned Successful investing begins with the right perspective Invest in high quality securities • Investors need not seek the illiquid or esoteric Preservation of capital is a primary goal • Avoiding big losses is instrumental in achieving long term gains • Don’t believe in being fully-invested at all times 4

5. The Trouble with “Style Box” Investing Should investment decisions be reduced to a nine box diagram? • Style box shortcomings • Although the common methodology for investing (particularly among institutional investors), there is growing evidence “style-boxing” contains major shortcomings. In general, style boxes: • Marginalizes the most important factor shaping investment returns—asset allocation. Although it’s widely accepted that asset allocation accounts for most of a portfolio’s return and risk over time. Most investors use style boxes to create static asset allocations that never adjust to meet the ever-changing investment environment. Determinants of Portfolio Performance¹ • Promotes a rigid framework that may actually increase risk and volatility. The static investment strategies resulting from a style box approach means clients are often greatly exposed to an asset class even though there may be compelling evidence that asset class is irrationally over-priced. • Downplay the role of cash. Focusing on market-based benchmarks promotes being fully-invested at all times, even when moving to cash may be a prudent best investment decision. ¹Brinson, Hood, Beebower, 1986. Study suggests asset allocation largely explained variations of returns across large pension plans. 5

6. The Diversification Argument Most firms use some version of the diagram below that show annual return leadership among various asset classes. Virtually all conclude that since it’s difficult to forecast which asset classes perform best in a given year, clients should be invested in all, and at predetermined weights. See Performance Footnote (1) Is asset class performance as random as commonly believed? 6

7. Why Asset Allocation and Management Should Be an Active Process Changes in the “macro” environment—whether through economic growth, taxes, regulation, or fiscal and monetary policies—impact asset classes in different ways. Further, our experience suggests changes in monetary and fiscal policies create somewhat predictable economic environments. Therefore, investors can establish timely asset allocation strategies. To us, asset class performance is often far from random—distinct and plausible trends can be found. 7

8. Why Asset Allocation and Management Should Be an Active Process Performance differences between two contrasting asset classes often exist in multi-year cycles—We believe multi-year patterns can be anticipated 8

9. Making Rhyme and Reason Economic Drivers Favorable Asset • Relative performance between asset classes can often be explained by economic variables, especially when used in conjunction with valuation analyses • We examine economic data and policy changes to forecast the likely path of the economy and markets • We then overweight favorable asset classes and underweight riskier ones 9

10. Game Changers 10

11. Reckless Abandon-Spend, Spend, Spend

12. Even Uncle Ben is Spending 12

13. Taxing the Wealthy

14. Tax Man A Cometh Tax Rate Increases 14

15. Asset Management What’s Next? 15

16. Making Rhyme and Reason Economic Drivers Favorable Asset • Relative performance between asset classes can often be explained by economic variables, especially when used in conjunction with valuation analyses • We examine economic data and policy changes to forecast the likely path of the economy and markets • We then overweight favorable asset classes and underweight riskier ones Fed keeping rates low Watch Money Supply VAT = Inflation Watch deficits 16

17. Disparity in Shareholder Returns Begins 2011 • Starting in 2011, capital gains will receive significantly better tax treatment than dividends Dividends Capital Gains $1 of Corporate Profit $1 of Corporate Profit 35% Federal Corp. Tax 35% Federal Corp. Tax $0.65 net profit $0.65 net profit 39.6% Federal Dividend Tax (43.4% in 2013) 20.0% Federal Cap Gains Tax (23.8% in 2013) $0.39 net to investor* $0.52 net to investor* + 33% higher * Before state and local taxes. 17

18. 2011: An Equities Game-Changer • Tax Changes in 2011 mean dividends will have a significant tax disadvantage to capital gains. • Market should revalue accordingly; clear inflection point in “Growth vs. Value” debate. • Total return investors should shift toward capital gains and rely less on dividends. • Investors should monitor companies’ capital allocation policies. 18

19. A Return to “Growth” Leadership • With the disparity in after-tax returns around the corner, investors should think about shifting ggequities more toward “growth” stocks rather than “value” ones. • The virtual parity in value and growth indexes represents, in part, the current “fairness” of value ggand growth taxation (dividends and capital gains are both taxed at 15% currently); we expect ggdivergent multiples going forward. • Other reasons for a timely growth shift include: • Contrarian Theme: Value has outperformed growth over the last decade; most investors over-weight value. • Valuation: The growth “premium” has eroded—investors get healthier, more stable companies at no premium today. • Growth may benefit from a potential “quality trade” as potentially higher interest rates and general uncertainty lead hhiinvestors toward cleaner balance sheets and away from leverage and deep cyclicals. • De-leveraging of banks and other indebted companies could curtail earnings growth among value stocks; hhienvironmental reform would impact value stocks more. • Risks to this outlook include: • A stronger-than-expected economic recovery could favor deep cyclicals, banks and more value-oriented issues. • The Obama administration’s efforts to curb health care profits and increase taxes on multi-nationals’ foreign profits. llllll(Growth has more exposure to multi-nationals than value.) • While the tax changes are likely, it has not been finalized yet. 19

20. Q & A Kalei Cadinha-Pua’a President & COO (808) 523-9488 www.cadinha.com kalei@cadinha.com 20

21. Appendix • Performance Footnotes: • Data sources: Large Cap—S&P 500; US Large Cap Value—S&P/Citi Value; US Large Cap Growth—S&P/Citi Value; US Small Cap—Russell 2000 until 1994, S&P 600 thereafter; International—EAFE; US Bond—Lehman US Treasury Aggregate; US T-bills—Ibbotson Associates. Indexperformance data are from sources we believe to be reliable; however, we can not guarantee its accuracy or completeness. • This strategy is based on Cadinha & Co., LLC management of fully-discretionary accounts with balanced objectives. Allocation and holdings data is reflective of the ‘Cadinha Balanced Composite’ currently comprised of 22 accounts totaling $43.2 million, representing 7% of total assets under management. Performance:Results displayed are time-weighted using beginning of quarter values and daily-weighted cash flows. Since March 31, 2009, the composite includes all taxable and tax-exempt, fully discretionary accounts with assets greater than $1 million. From 1990 through March 31, 2009, the composite included all tax-exempt, fully discretionary accounts with assets greater than $3 million. Returns may differ from other accounts managed by Cadinha & Co. due to different objectives, guidelines, and restrictions. Leverage has not been used. Advisory fees are described in Part II of form ADV. Past performance is no guarantee of future results. Risk/Return Characteristics: Data reflective of the ‘Cadinha Balanced Composite’. Standard deviation, information ratio, Sharpe ratio, and alpha calculations utilize annual gross returns. Beta and R-squared calculations are based on monthly return observations. Benchmarks used are 60% S&P 500 / 40% Lehman Aggregate Treasury Index and the Lipper Balanced Fund Index, comprised of 30 Balanced Mutual Funds maintained by Lipper, a Reuters company. • Beta measures portfolio volatility relative to a benchmark. A result greater than 1.0 implies that the portfolio is more volatile than the benchmark; a result less than 1.0 implies that the portfolio is less volatile than the benchmark. Betas change, often substantially, over time. • Alpha measures the risk (beta) adjusted rate of return on a portfolio in excess of what would be predicted by an equilibrium model such as the Capital Asset Pricing Model (CAPM). Alphas change, often substantially, over time. • Sharpe Ratio indicates whether a portfolio‘s returns are due to high levels of risk-taking by dividing a portfolio’s excess returns over risk-free rates by the volatility of the portfolio’s returns. Sharpe ratios change, often substantially, over time. • Standard Deviation measures the dispersion of a portfolio’s return from its mean. • Information Ratio measures excess returns over a benchmark versus the volatility of those excess returns. A higher ratio suggests consistency of excess returns. Information ratios change, often substantially, over time. • R-Squared is a statistical measure suggesting the percentage of returns than can be explained by movements in an underlying benchmark index. • References: • Brinson, Gary, Hood, L. Randolph, and Beebower, Gilbert L., 1986, “Determinants of Portfolio Performance,” Financial Analysts Journal July/August 1986: 39-44. • Howard, Charles T. and Callahan, Craig T., 2005, “The Problematic ‘Style’ Grid,” Working Paper, University of Denver. • Wermers, Russ, 2002, “A Matter of Style: The Causes and Consequences of Style-Drift in Institutional Portfolios,” Working Paper, University of Maryland. 21