By Vince DelaRosa, May 31, 2023
Private credit is a powerful tool for companies seeking capital, offering unique advantages over traditional financing options. However, one often overlooked avenue for enhanced private credit approaches is the partnership potential between banks, investors, and American Indian tribes. There is a lot to consider, let's take a closer look.
In the ever-evolving world of finance, innovation holds the key to shaping the future of capital investment. Within this dynamic landscape, private credit and investment banking stand as two distinct domains poised to thrive under a tribal approach, ushering in a new era of exceptional product offerings. In this concept article, I delve into the realm of possibilities and ask the question that ignites curiosity: "What if?"
The market's appetite for fresh product offerings in the finance and banking sector is palpable. The rise of younger generations necessitates a paradigm shift, it is time to leave legacy banking and outdated protocols in the dust. However, traditional politics will prove to be an insurmountable obstacle within Congress, hindering swift progress.
Actually, a better alternate path awaits. In my opinion, the true potential of this proposition lies in embracing a tribal approach, where cleaner modern regulations, protective taxing regimes, and an authentic tribal business firewall converge on new finance and banking rails. It is within this synergy that we discover an unparalleled avenue for success, ready to rewrite the future of finance.
Investors should realize that exploring the possibilities of establishing a new tribal private credit and investment banking model is about long-term performance and self-preservation! This could be the single most important transition to consider.
Markets need to transition out of tired monetary and financial legacy models. The ideas I propose here could be anchored, structured, and moving with a motivated tribe in months not years.
A new finance and banking movement with a tribe holds immense promise. Tribes offer unique advantages and superior performance. Example, investors can leverage the tribe's tax-exempt status. In this manner, tribes create an immediate market hedge and financial leverage, this is an intriguing prospect for private credit and new investing products.
Understanding Private Credit
Private credit encompasses a range of strategies and borrower types, including senior secured loans, junior unsecured credit, collateralized loans, and distressed situations.
Private credit is a thriving sector within non-bank lending, catering specifically to privately owned middle-market companies that are not publicly traded. This segment has amassed an impressive $1.3 trillion in assets under management, with an available capital pool of $350 billion.
The Federal Reserve's commitment to combating persistent inflation by maintaining higher interest rates has tightened credit conditions, placing increased financial pressure on private equity portfolio companies that heavily rely on debt.
Embracing a tribal model presents potential advantages for various entities operating within the private credit sphere.
The Universe of Private Credit Strategies Has Been Expanding, Diversifying.
Private Credit and Sovereign American Indian Tribal Strategy
American Indian tribes possess a unique advantage in the private credit realm as non-taxable entities. This characteristic allows tribes to create a distinct non-banking landscape, unburdened by taxation, this can hedge interest rate issues.
By leveraging their tax-exempt status, tribes attract investment opportunities and navigate market challenges more effectively, this can serve as a utility for smart money investors.
Tribes also value business transaction where confidentiality is a cornerstone. This helps preserve and safeguard your proprietary business information. This creates an attractive environment for private credit transactions, protecting the privacy of borrowers and lenders alike.
Unlocking Unique Financial Opportunities
The collaboration between private credit and tribes can unlock remarkable opportunities. Tribes and investors can diversify investment portfolios, explore various private credit strategies, and tap into alternative revenue streams.
One Significant Advantage: Expedited Licensing Process for Tribal Banks
If there was an interest, another significant advantage that American Indian tribes have in the private credit landscape is their ability to license their own bank and formulate their own debt-free currency. This model could be up and running within a relatively short timeframe, around 60 to 90 days, with an experienced team.
By having their own licensed bank, tribes gain greater control over their financial activities and can offer a wide range of banking and Invesment services to support private credit activities, and other interesting product offerings. This includes underwriting securities, providing advisory services, a trading desk, working in the $428 billion-dollar cross boarder remittance markets, and facilitating capital market transactions.
The ability to establish a licensed bank within a short period would allow tribes and their investing partners, to seize market opportunities swiftly, respond to changing market conditions, and capitalize on potential investment prospects without unnecessary delays.
NATIVE AMERICAN BANKING INNOVATION:
We have consulted with a 30-year banking and investment professional to help us begin the design of a hybrid tribal banking model. We would be open to discussing this project in conjunction with the other ideas and concepts expressed here.
NOTE: We can move exclusively on the private credit discussion above, but here is our take on the final leg of a juggernaut financial proposition!
Tribes have the legal authority to coin their own currency and formulate their own financial systems and institutions.
There has already been an extensive 50-page legal review done on the creation of an independent tribal banking model. If you want, you can see the legal review below.
Our concept of an American Indian tribal investment banking model (AITB) proposes a frictionless investment banking ecosystem specifically designed for tribes, their business partners, and interested investment groups.
We do see commercial consumer applications for AITB and we have a few interested client groups, one of which could have 6 to 10 million users online with this model within 18 months. We can discuss this further in a private meeting.
We have also received inquiries about servicing the $428 billion-dollar cross boarder remittance markets.
THE INNOVATORS DILEMMA
We can capture the pace of progress, which the market needs with disruptive and legal technology finance moves.
This is an unusual time; the entire country recognizes the need for fundamental financial and banking innovations, yet Congress has been slow in implementing them; mostly due to regulatory rigidity and politics.
The banking industry right now needs a new ecosystem. Look at the current industry conditions, local community banks are on wobbly legs and Chase has established a virtual monopoly. Don't get me wrong: I enjoy monopolies, when I own a piece of the action.
Three Paths - Qualify the Discussion - Several Options
1.) PayPal Model 2. We could look at product migration of deal flow into an existing fintech model. That would keep us on the banking rails (SWIFT/ACH). We'll call this the PayPal Model 2.
2.) White box, A white box approach riding on top of some tribal regulatory framework. Some products could include a powerful non-banking model for some products, like private credit, venture capital, new REITS, ETFs, sovereign Index funds, M&A, leverage buyout approaches, governmental bonding models, exclusive IPO approaches, private equity, and a robust trading desk, just to name a few.
3.) Potential for Innovation. This references the construction of an AITB. This is financial innovation, which a tribe may pursue legally.
See more on the 3 areas below:
PAYPAL MODEL 2
We could adopt a posture similar to the fintech PayPal model. Essentially PayPal is a global payments company that facilitates payments between parties through online transfers. PayPal is responsible for a huge portion of global payments made today, processing around 5.34 billion payments quarterly. We could design a few alterations, bolt on a few other products, package that up and we would have a very nice model alternative.
If we only decided to pursue this fintech approach, we are ideally equipped to carve new boundaries. Imagine the magnitude of a tribal type of PayPal model, if built upon the strengths of tribal business advantages, this would be next level. We could truly redefine this space.
By embracing this paradigm, tribes could gain unprecedented power to shape the future of fintech financing options. Tribal sovereignty could converge with innovative technology, unlocking unrivaled potential. Our banking advisor used to work with PayPal in the early days of their development. We have substantial ideas around just this area of innovation.
White Box
Adopting a white box approach within a tribal framework can revolutionize the private credit and investment banking industry. By implementing a transparent and interconnected system, we can unlock significant benefits for various stakeholders.
A white box approach emphasizes openness and accessibility, enabling seamless migration and interconnectivity between systems. This approach can be particularly impactful when applied to mission-critical business processes within the tribe's financial ecosystem.
By leveraging a white box system, the tribe can enhance efficiency, streamline operations, and improve overall transparency. This transparency builds trust among investors and borrowers, fostering a more vibrant and dynamic private credit market.
This level of control and customization can provide a competitive advantage, attracting both tribal and external market participants to engage with the tribe's private credit and investment banking offerings. This model would ride on the current rails and just offer superior performance and more innovative product offerings.
Tribes can glide around governmental bureaucracy and get things done for the leading market innovators. AITB can offer a comprehensive financial infrastructure that fosters economic growth and new investment opportunities.
Potential For Innovation! Want to build a Monopoly?
An AITB approach could include all the bells and whistles you could imagine, a real modern approach. The beauty of this system is it can operate completely outside the federal banking grid. This would be a tectonic shift, which I feel tribes should have pursued 75 years ago. As a sovereign nation, financial systems are critical for a nations success. Tribes must enter a new era, and we can help them usher in that era.
By leveraging the sovereign status of a Native American tribes, AITB can design and deploy a best-practice capital market framework aligned with external investment groups. AITB could operate independently, positioning itself as an alternative banking and capital market system that provides tribes with autonomy in governing their economies. Investors and consumers can benefit from such advantages and activities.
The AITB model would be an advanced financial ecosystem. Combining technological advancements with regulatory expertise, offering efficiency in diligence, execution, monitoring, and liquidity through digital solutions such as smart contracts, online disclosures, and digital registries.
AITB will aim to provide a diverse range of asset classes within its ecosystem, including corporate equity and debt instruments, diversified funds, and fractional equity instruments for residential and commercial real estate.
Through strategic partnerships with research firms and AI-driven analytics, AITB's knowledge management system can equip investors with continuous market data, asset valuations, and sophisticated analysis for informed decision-making and business modeling.
OVERALL SUMMARY
New private credit and banking approaches would be unique with a tribe. Even without a full-blown innovation approach, we still can achieve enormous new scale and interest from current market players.
For tribes and outside market interests, leveraging technology to achieve outsized market growth potential is the way of the world. We can no longer be constrained by a political system that lacks the will or foresight to give the American public and investors a better landscape of opportunities to guide their own futures, we must forge our own way.
We feel the time is now to embrace this innovative solution for a prosperous future. Let's seize this opportunity to support the AITB model, fostering economic growth and empowerment for tribes while unlocking new avenues (and solutions) for investors and the general public.
Together, we can shape a brighter financial future for all stakeholders. The stage is set for a real financial revolution. Tribes can lead the way.
If you want to learn more, feel free to reach out to us here.
Vince DelaRosa is the founder of Native Advisors.
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