Every day, we read headlines blaring about potential default across Europe, looming U.S. deficits, currency spikes and volatile equity markets around the world. In past generations, tribes were relatively sheltered from market trends due to their rural, agrarian, barter-based economies. But that is changing. Now more interconnected than ever with the world’s economies, many tribes are reevaluating their financial plans and, perhaps more important, who is guiding those plans.
With tribes’ distinct structures and unique influx of capital from federal funding for housing programs, capital from gaming enterprises and lawsuit settlements, many tribal leaders are left to wonder if their financial advisors truly have the knowledge and experience necessary to skillfully guide their financial portfolios.
Sam Deloria, Standing Rock Sioux Tribe, an American Indian policy analyst for 50 years, and the director of the American Indian Graduate Center, understands these concerns. He believes that by working together to develop some common guidelines, tribes would have greater success when selecting investments and advisors. “There should be some collective analytical effort to develop criteria that tribes might take into account when deciding what to do with surplus funds and how to select individual advisors and investment managers,” says Deloria.
He suggests that tribes work together, following the model established by the Council of Energy Resource Tribes (CERT). “I believe everyone should share information,” says Deloria. As for evaluating a specific investment advisor, he says there are no absolutes or easy answers, but if tribes collaborate, they can better identify advisors who are qualified to guide their unique investment portfolios.
Matthew L.M. Fletcher, professor of law and director of the Indigenous Law and Policy Center at Michigan State University College of Law and moderator of Turtle Talk: The Indigenous Law and Policy Center Blog, agrees that it makes sense for tribes to work together to invest strategically. “I’m a big fan of intertribal cooperation,” Fletcher says. “You could have a consortium of tribes, especially those that are litigating a lot of the same claims and getting similar settlements, and those tribes should get together and really discuss amongst themselves, come up with some sort of agreement, do some research on the people who are out there, and collectively, I think they could come up with some logical criteria to follow.”
Andrew Adams III of the Muscogee (Creek) Nation and an attorney with Jacobson, Buffalo, Magnuson, Anderson & Hogen in St. Paul, Minnesota who specializes in tribal and gaming law, agrees that choosing a qualified advisor is key. “Tribes should do their due diligence in finding good people to place their trust in, and it can be a challenge because there are a lot of people who come out of the woodwork when they know that a tribe has some money to invest,” Adams says. “You want people who are experienced, who have done this before, and understand the tribal cultures.”
In principle, Adams thinks intertribal strategizing is a good idea. Although he cautions, “It can be difficult because some transactions have to be confidential. It would be possible, however, for tribes to come together and talk about best practices and the pitfalls to avoid.”
Vincent Logan, owner and president of The Nations Group Advisors (TNGA), one of the first Native American-owned and -managed registered investment advisors, believes that advisors should get the third degree. In fact, he expects to run the gauntlet for every prospective client. “The questions we get asked all the time by tribal leaders are: How do you make sure we don’t lose all our money? How do we know you have the knowledge and experience to handle our investments? How do we know you understand our unique cultures and history? A client should think twice about hiring an advisor who can’t provide adequate answers to those questions,” says Logan. Recently named to the Oklahoma State University Foundation’s board of governors, Logan established TNGA after a successful career on Wall Street. A member of the Osage tribe, Logan grew up in Norman, Oklahoma. After attending Oklahoma State University, he completed law school at the University of Oklahoma’s College of Law. He moved to New York in 1986, where he attended Columbia University’s School of International and Public Affairs. He then spent two years working at the U.S. Department of Justice, and from 2001 to 2006 he worked as a corporate finance attorney at Schulte Roth & Zabel, one of the top law firms in the country.
Logan was working at Merrill Lynch as a private banker in 2008 when the financial crisis hit Wall Street. While there, he met Alex Xethalis, a trader for institutional clients, and in March 2009, they established TNGA. A short time later, Kansas-based Montage Investments made an investment in the firm, making TNGA an affiliate of an investment firm that collectively manages over $10 billion in assets.
“Tribal nations see we are Native American-owned and -managed,” Logan says. “We focus on advising tribes because we understand their unique circumstances and challenges.” Logan uses his understanding of tribal financial issues and his background working with large institutions to implement strategies designed to solve his tribal clients’ long-term challenges, “It’s really simple: we want to position our clients’ assets to take care of their children for the next seven generations.”
Logan believes that by utilizing institutional best practices, tribes have the opportunity to realize better rates of return than
their current portfolios of government bonds, agencies and mortgage-backed securities can offer. TNGA uses multiple allocation models based on models utilized by established institutional investors, such as university endowments, municipalities and pension funds. “Each account has a different risk/return profile and is constructed accordingly. For example, a permanent fund or one with a longer time horizon might be benchmarked against the NACUBO [National Association of College and University Business Officers] index, which tracks university endowments, while a shorter-term account will likely utilize the liability driven–approach pension funds employ.” Xethalis explains.
Deloria encourages tribes to develop an understanding of any financial advisor before deciding if it meets their needs. “Tribes should look at everything—both the positive and the negative,” he says. Deloria also thinks tribes should ask, What’s the interaction of advisory boards with the financial managers? Who oversees the managers? Who oversees the boards? Is there recourse between the tribal council and the board to oversee these investment managers?
In other words, there is a lot of homework to be done, and Logan encourages tribes to be selective when choosing an advisor. “I have seen tribes suffer tremendously from making bad decisions,” says Logan, “but that doesn’t have to be the case. There are plenty of qualified, knowledgeable and trustworthy advisors out there who keep their client’s best interests at the heart of all they do. The key is in taking the time to find someone who demonstrates a strong understanding of the tribes’ unique needs and requirements, and who has a history of developing solutions to meet those needs.”
Logan says TNGA will only invest a tribe’s money based on allocation formulas that have been determined by a tribe’s governance board in a formal document that spells out the agreement. Asked why someone should come to TNGA rather than directly to a broker, Logan says, “As an investment advisor, our fiduciary duty is to the tribe, to our clients. We are at all times focused on acting in our clients’ best interest. The Nations Group Advisors was founded to ensure the preservation and the growth of Native American tribal assets by delivering a comprehensive, institutional perspective to tribal finance. We assist nations by designing effective strategies for reaching both immediate and long-term financial objectives.”
TNGA also is a strong advocate of financial education for Native Americans. Logan, a founding member of the Native American Bar Association of Washington, D.C., has been a mentor for Native American attorneys and college students. Asked what young aspirants should do to prepare for a career on Wall Street, Xethalis, who earned a master’s degree in business administration at New York University while working full-time, says, “We always recommend a well-rounded college education with coursework in mathematics, statistics and even calculus. Also, students should consider pursuing an advanced degree in business, finance or law. We mentor young Native American professionals seeking business or legal careers or those thinking about the securities industry.” Xethalis mentioned that TNGA partnered with the Center for Native American Youth at the Aspen Institute to sponsor a program where Native American high school students attend the Columbia University Summer Program for High School Students. “While in the city, we take the students down to the New York Stock Exchange and visit investment banks,” he says. “Our hope is that by seeing this world they’ll consider a career in money management. This will allow them to be in a better position to help ensure the success of future tribal generations.”