Native American tribal funds institutionalise as SEC allows investor accreditation
In 2020 the Securities & Exchange Commission allowed tribal funds to register as accredited investors, while that year's Covid pandemic exposed the risks of Indian nations relying on gaming revenues - just two of the factors which have spurred these asset owners to become increasingly institutional (Andrew Caballero-Reynolds/AFP via Getty Images)
Native American investment funds are entering an “exciting period of opportunity,” as tribal governments seek to diversify beyond gaming revenues, expand investment capabilities and pursue strategies aimed at long-term economic sovereignty.
Before 2020, tribes were unable to register with the Securities and Exchange Commission as accredited investors, starving tribes from access to private capital. The reversal of the decision has made portfolio construction increasingly important as tribal economies seek to mature.
“We are seizing the opportunity now. We are no longer settling,” Eric Trevan, told AOX. Trevan is a member of the Match-E-Be-Nash-She-Wish Band of Pottawatomi nation and formerly served as a policy adviser to the Treasury Tribal Advisory Committee of the US Department of Treasury.
Investment funds serve as a vital economic engine for tribes (many Native American tribal funds are fairly private about the exact size of their investment portfolios).
"The investment return is actually that much more critical because it's that investment return that funds government functions," said Gavin Clarkson, managing director of Native American Capital, former deputy assistant secretary of policy economic and development within the Department of the Interior and a member of the Choctaw Nation of Oklahoma - the third-largest tribe in the US.
Unlike state and local governments, he noted, tribal governments generally do not rely on a broad tax base to finance public services. While some tribes have turned towards issuing municipal debt to address unmet capital needs, tribal governments face higher costs when issuing bonds in public markets, and are often the victims of a disproportionate number of enforcement actions by the Internal Revenue Service, according to Clarkson.
"To fund their operations, they've got to fund their operations either out of revenues that they're generating, or out of investment returns that they are generating,” he said.
Clarkson said tribes historically invested conservatively but are gradually broadening their investment approaches due to growing financial expertise and lessons from the pandemic. For nations which relied on gaming revenues, for example, the pandemic exposed the risks of relying heavily on a single source of income and underscored the need for greater diversification.
"The global pandemic shut the lifeline down for many of our native nations," Trevan said. "That was really the wake-up call to say, 'we need to do something else.'"
Since then some tribes have explored investments in technology, lending platforms, food and beverage businesses and hospitality, while others are looking internationally for trade and investment opportunities.
Trevan also believes tribal governments are becoming more ambitious in their investment objectives, branching into private markets and technology sectors. Rather than accepting modest, stable returns many are increasingly benchmarking themselves against larger institutional investors.
"If we had a consistent return for five or seven years of 6 per cent, that would be a success," Trevan said. "But when you compare yourself to other funds, they're making somewhere between 10 per cent and 15 per cent. It's that gap that we find ways to not settle for," he said.
The shift has not been without challenges.
Clarkson said some tribes have historically received poor investment advice, with certain managers taking advantage of tribal governments' relative inexperience in institutional investing. As a result, strengthening governance, improving financial education and building internal investment expertise have become priorities across Indian Country.
The decision by the SEC - which applies to funds with more than £5mn in investments - was not without its criticism.
Commissioner Hester Peirce said at the time: “I would have preferred an approach that allowed tribes to qualify by counting their assets, instead of just their investments.
“One Indian tribe commented that it ‘does not see a valid reason why corporations or other business entities should be subject to a $5mn asset standard while Indian tribes are subject to a $5mn investment standard’. I, too, do not see a valid reason for applying an asset test to certain entities, while applying an investment test to Indian tribes and other governmental bodies.”
Trevan, however, argued that many of the biggest barriers now lie outside tribal governments themselves. Although federally recognized tribes are sovereign governments with the authority to establish their own financial frameworks, he said investors and policymakers often fail to fully recognize that status, slowing innovation and investment partnerships.
"The biggest challenges exist not from the native nations themselves," Trevan said. "It's from external pressures."
Even so, he believes perceptions are gradually changing as more tribes demonstrate sophisticated governance and increasingly institutional approaches to investing.
"Native nations have endured very bad domestic policies for a few hundred years," Trevan said. "Being able to grow out of that is taking some time."
For centuries, he said, federal policies sought "to dissolve, to gentrify, to eliminate Native nations and their economies." As tribes continue to strengthen their investment capabilities and assert greater control over their financial futures, he believes that history makes today's progress all the more significant.