"Unlocking Private Credit & Investment Strategies with an American Indian Tribe!"

Vince DelaRosa, 9/22/2023

A new private credit and investment banking model for American Indian tribes and others is being considered. This approach seeks to leverage sovereign governmental authority to facilitate innovative investment and financing options. This model could open the doors to fresh opportunities in private credit and investment banking, servicing legacy models and catering to a modern generation of investors. Let's take a closer look.

Tribal Signals can make investors aware that an opportunity has approached.

The origins of this story took shape in 2012 when I was an elected tribal official. At the time I was witnessing deals that were not getting traction with legacy banks. I felt there were alternative financing structures that we could consider and/or create.

At the time, I asked our leadership team, "Let's start a private credit model so we can service deals as a primary and secondary investment solution across the credit, private equity, and real estate asset classes."

Because we owned a U.S. chartered bank, the general consensus was that we could easily respond to some of these alternative asset financing options. At that time, the bank we owned was not interested, mostly because of regulatory constraints. Fast forward to today, I have rekindled these discussions and I have a few tribes interested; here is the REST OF THE STORY!

What is Private Credit? Classic Definition

"Private credit is non-bank lending to mostly private-equity-owned, middle-market companies that aren’t publicly traded or issued. It is one of the fastest-growing segments in the lending landscape, with close to $1.3 trillion in assets under management, of which $350 billion is capital waiting to be deployed." -Moody's (See more here)

Today, private credit has become a main player in the lending market. Accordingly, some tribes are realizing they can create a sustainable blueprint for diverse market conditions.

Tribal Financial and Investment DNA is Different: "Built on New Rails!

The first thing to understand is the financial DNA (the authority) of a sovereign tribal government is independent and separate from U.S. regulatory authorities. The importance of this cannot be overstated. Tribes literally hold the keys to harness mega financial and economic forces on new financial rails.

This realization by the broader mainstream financial markets could enhance various new options. There are industry sources that could plug into tribal platform financial systems, once erected, and build more robust portfolios on top of the tribal platform. This could be done in months not years.

For years tribes have worked with outside sources to carry out financial and investment activities, billions of dollars' worth of deals. From large 401(k) holdings, to casino financing, and everything in between. During this journey, we have (tribes) failed to realize the inherent strength in our own sovereignty.

When viewing markets through the current lens, tribes just might be one of the most interesting choices for developing flagship credit products and a prolific private investment banking model. A new regime of tribal options can offer extraordinary results.

Private Credit Market Conditions

Private credit used to predominantly be controlled by banks. As banking institutions continue to heighten their lending standards, closely monitored by regulators, an increasing number of borrowers will continue to turn to private lenders to fulfill their financing requirements. This shift places private lenders in a formidable position.

As you can see below, assets under management have grown substantially in recent years, from $500 billion in 2012 to $1.3 trillion in 2022.

The surge in private credit presents significant growth prospects. This expansion is driven by the fundamental necessity for dependable liquidity within the economy. In light of recent bank failures and associated capital constraints, there exists a pressing need for entities to step in and address this void. I see an opportunity here to also bridge the gap between institutional investors and retail investors.

In 2021, investments in private debt in the U.S. reached a historic high, totaling a staggering $193.4 billion. This showcases the attractiveness of mid-market opportunities. By the close of 2022, the assets under management (AUM) in the private credit sector had surged to an estimated $1.21 trillion, demonstrating its significant presence within the U.S. financial landscape.

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Looking ahead, the trajectory of the private credit market remains promising, particularly in the mid-market space across various states. It is anticipated that by 2026, the total AUM in this sector will witness substantial growth, reaching an impressive $2.69 trillion. This projection indicates that private debt AUM is poised to surpass that of real estate funds, solidifying its position as a dominant force in the alternative investment landscape.

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Don't Take My Word for It: "What are the Experts Saying?" $500 Billion - 1 Company!

American Indian Tribes Could Enhance Great Market Conditions

In this context, coming full circle from 2012, tribes can offer both lower taxes (tribal firewalls) and premium yields for the private credit and private investment banking sectors. With advanced low taxation structures and innovative financial product offerings this could spark a financial and investment revolution! We presume others in the industry may find a tribal model attractive for their clients.

Diversification at Its Best

A native investment platform not only can offer a range of new options for private credit and investment banking markets, but here are a few other product examples:

🚀 New Growth Capital: Private equity firms invest in established companies that want to grow and expand. They provide funding to help these companies achieve their growth plans. Imagine doing this with a 50% reduction in taxes overall.

🌱 New Venture Capital: Private equity firms invest in small, promising startups with the hope of big future success. They provide early-stage funding to startups with innovative ideas. We have access to hundreds of durable and well positioned (stages 4 and 5) companies that could comprise unique investment pathways.

⚖ New Mezzanine Financing: Private equity firms provide a combination of debt and equity to companies. They offer funding to support various activities, like expansion or acquisitions. We are aware of hundreds of companies that simply need a little support and with a platform like what we are proposing here, growth would be accelerated in months.

💲 New Secondary Investments: Private equity firms buy existing investments from other investors. They may purchase shares in other private equity funds or directly invest in companies that others already own. We see pipeline opportunities with companies. Note, once a tribal platform is involved, the cap tables improve quickly.

🏗 New Real Estate Private Equity: Private equity firms invest in properties like buildings, offices, and land. They aim to generate income through rent or profit from property value appreciation. We already have our eyes on capital market options for distressed assets. Real estate is an asset class we have been in talks with various sources on. We could roll up some unique offerings in these sectors once we help a tribe build out this approach.

Tribal Self-Origination: The Key to Success, "The Private Investment Banking Playbook"

A native investment platform's self-origination strategy has significant merit. We consider this one of the cornerstones of a new investment approach across all asset classes. By cultivating a wide funnel of opportunities and applying a rigorous selection process, we can ensure that only the most promising investments make it into new tribal portfolios.

This approach will optimize risk-return profiles, offering investors access to opportunities that are genuinely one-of-a-kind and impossible to replicate elsewhere. There are significant opportunities in tech, medical, real estate, energy systems, and financial products where market conditions have some level of business MOATS around them through a tribal business structure.

if you considered the 60/40 model, just imagine enhancements to that way of thinking. If you're a first-principles thinker, one day you may imagine all your investment or business holdings behind a tribal taxation firewall: same model thinking, better results!

At the heart of this model is a multi-channel sourcing strategy for holdings. This approach ensures that investors have access to a wide range of opportunities, optimizing their chances of discovering valuable investments. This is akin to VC/LP structures, but in tandem with government back entities.

Tribes have worked on a three-step data-driven deal flow process, below exemplifies the basics of the strategy:

* Data Aggregation: The process begins with a meticulous refinement of target criteria, coupled with the gathering of data from a vast pool of over 20 million prospects. Example, once an investment product is constructed, holdings will be enhanced by the tribal governmental relationship. REITs could be an example, or any number of investment product types under a balanced 60/40 type model.

* Multi-Channel Sourcing: Native Investment Platform will excel in managing origination across numerous channels. Tribal business interest is varied, in this manner, investors can own parts of what the tribes are holding within their exclusive investment banking model.

* Target Clients / Deals Lined Up

This investment platform will cater to a diverse range of clients, including:

• Private Equity

• Family Offices

• Corporate Acquirers

• Exclusive Tribal Intermediaries

These are the areas of business and investment collaboration which we think are meaningful. In an unusual twist, outside financial and investment groups can ride on top of tribal financial rails. This is comparable to working alongside a government to enhance your business and investing interest, this is unheard of, until now!

The Potential

Here are some potential unique advantages:

* Specialized Tax Structures: American Indian tribes operate within distinct tax frameworks, allowing them to offer investment vehicles with tax advantages not accessible to other entities. This tax efficiency can be a significant draw for investors. This can include all investment holdings enjoying 50% less taxes annually.

* Investment Capabilities: Tribes can leverage their sovereignty to design creative financial products that cater to specific investor needs. This flexibility enables them to tailor investments in ways that other entities cannot.

* Protection Behind Tribal Taxation Firewalls: The legal protections afforded to tribal entities create robust tax shields, safeguarding both the investments and the investors financial interest. Tribes can also erect effective business MOATS around their activities as to enhance the investor experience.

* Unique Business Models: Notice above, we do have access to markets that can enhance yields based on the mere reach of tribes.

Every year, there are literally hundreds of investment alternatives in multi-billion dollar industry sectors. Here is a comparable proof-of-concept idea. See here.

* Harnessing Mega Economic Forces: I close this article with a hidden market factor; an economic force which most are not familiar with. When this tribal model is rolled out, we will be embedded within the 5th largest GDP cumulative market force in the world. This is a mega economic force when you consider the financial scale.

Bloomberg

NOTE: These are active market conditions. THIS IS A SIGNIFICANT PROOF OF CONCEPT as it relates to financial output and productivity! It is rare that a new business model like what we are discussing, would open with active market conditions and elements of the core business model comprising the 5th largest GDP in the world. In fact, according to the chart above, these market conditions would be at the 3rd largest position in GDP production in the world!

These market conditions eclipse the national economies of Russia, Canada, Italy, and Brazil.

In summary, American Indian tribes possess the capabilities to revolutionize some elements of the private credit and private investment banking market. By tailoring solutions, prioritizing sustainability, optimizing tax structures, and engaging in collaborative partnerships, tribes can positively respond to investor needs while pioneering a new era of private credit market offerings and a new private governmental investment banking ecosystem.

This approach holds the potential to benefit both investors and tribes, fostering a mutually advantageous financial landscape that can seamlessly go beyond current market conditions!

Project Note

We are helping a tribe develop a team for this project. We are seeking the best thought leaders around innovations in this space. If you would like to learn more about this project, feel free to contact us here.

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Vince DelaRosa is a former legislator for an American Indian tribe and the founder of Native Advisors.