Gamblers who drop money at the slot machines and tables of some casinos and bingo halls are part of an emerging investment management industry.
Gaming revenues are part of new asset generation among Indian tribes. That money, in turn, increasingly is being overseen by outside investment managers.
For the investment management community, it's not a windfall: one conservative estimate says gambling passes on approximately $1 billion annually in net profits disbursed among 100 tribes across the nation.
How much of that $1 billion is available for investment is unclear. Tribal financial executives and their money managers and consultants either won't talk about it or say there's no estimate on total investible assets from Indian casinos.
For some, such as the Mashantucket Pequot tribe - owners of the massive Foxwoods Resort in Ledyard, Conn. - gaming revenue is creating wealth, and some of that wealth is making its way to investment portfolios.
Eugene M. Christiansen, president of the consulting firm Christiansen/Cummings Associates Inc., New York, said Class III gaming at Indian-owned establishments - such as casinos and pari-mutuel betting - produced $3 billion in gross revenue in 1994. That figure grows to $3.5 billion when revenue from Class II gaming - mostly bingo - is added.
Christiansen/Cummings estimates roughly $800 million of that Class III gross flows annually to the tribes as direct revenue, along with another $180 million from Class II gaming.
Mr. Christiansen cautioned increased competition will begin to cut into the growth of tribal gaming revenues. And that's why tribes must establish investment funds now, said John Herrera, chairman of First American Securities, Minneapolis, an Indian-owned brokerage firm.
Some tribes hire outsiders
Some tribes are setting investment policies and hiring managers and consultants to handle an increasing variety of investments.
Chancellor Capital Management, New York, was hired recently by the Navajo Nation; Payden & Rygel Investment Counsel, Los Angeles, manages an account for the Jicarilla Apache Tribe; and 2-year-old Medallion Investment Management, Albuquerque, N.M., has leveraged its relationships with Indian tribes into a $160 million client list that includes the Pueblo of Laguna, Santa Ana Pueblo and other tribes in the Southwest.
The tribes need to set up a variety of funds, including governmental funds, pension funds for tribal employees and fiduciary trust funds, said Gary Dushane, a partner in the Albuquerque office of consultants KPMG Peat Marwick L.L.P.
"This money - they've got to get it working," said Dean Parisian, president and chief investment officer of Native American Advisors Inc., Alpharetta, Ga. "If you spend the principal and gambling goes away, what do you have left? What have you done?"
Mr. Parisian, a member of the Minnesota White Earth Chippewa tribe, opened his growth equity management firm earlier this year, aiming to offer services to tribal governments, among other entities.
Mr. Parisian admits to being frustrated in his attempts to interest tribes in his style of aggressive, long-term investing. Some newcomers to the gaming industry aren't prepared to make investment decisions; in other tribes, misappropriation of funds by administrators is a problem, Mr. Parisian said.
Observers note some of the tribes that have gaming or significant resources - such as the Navajo Nation and Pequots - have diversified portfolios and various outside money managers. The Navajo Nation, for example, has at least eight managers and uses SEI Capital Resources as its consultant.
But many other tribes, with smaller asset pools, are still investing in a few fixed-income instruments that frequently are managed by local banks, observers say.
Other sources of investible assets
Gaming is merely the most highly publicized source of revenue for the tribes. Some $2.1 billion is held in trust by the Bureau of Indian Affairs. The assets - generated from land claims against the U.S. government and from the use of tribal natural resources, among other sources - are under the management of the BIA's Office of Trust Funds Management.
The OTFM has been under fire for years, accused by the tribes of shoddy record keeping and mismanaging the assets.
Natural resources in the form of timber, water and minerals are a large part of many tribes' revenue flows, and sales and property taxes on non-Indian businesses operating on reservation lands are gaining favor as sources of income, said KPMG Peat Marwick's Mr. Dushane.
The Navajo Nation, which voted down reservation gaming, draws most of its revenue from mining royalties; its reservation straddles the borders of Arizona, New Mexico and Nevada.
The Minerals Management Service of the U.S. Department of the Interior reported mineral leases generated $164.4 million in revenue to Indian tribes in 1993, the latest available figure. From 1982 to 1993, MMS disbursed $1.8 billion to 55 tribes for which it administers mineral leases.
As governmental entities, tribal governments also have a right to impose taxes, such as rights of way for pipelines and power lines, said B. Reid Haltom, a partner of Nordhaus, Haltom, Taylor, Taradash & Frye, an Albuquerque law firm that has counseled several Indian tribes. Taxes are a good ongoing source of revenue, even for tribes that don't have abundant natural resources or gaming, he said.
Nordhaus, Haltom has counseled nine tribal governments in setting up a variety of taxes. Those tax collections can range from $100,000 to $8 million annually per tribe, according to the firm's research.
Proceeds from gaming, regulated by the Indian Gaming Regulatory Act of 1988, are earmarked for developmental and charitable activities. According to the National Indian Policy Center, Washington, tribal profits from gaming are being used for health care, benefits and scholarships.
Issues affect investments
In fact, social and cultural issues have a high profile in investment decisions of Indian tribes, and can affect risk-reward decisions, said Mr. Dushane.
"The outside world may not understand, but your people understand that," he told an audience of tribal leaders at a conference earlier this year.
He urged tribal officials to consider taking an active stance with their equity investments if it can help their tribe. For example, he suggested tribal officials contact manufacturing companies whose stock they own to encourage them to consider a site in their reservation when building plants, or to create training or scholarship programs for Indian youths.
"You should sit back occasionally and weigh if it's worth it to leverage the fact that you're an owner of the company," he said.
The tribal governments also have longer investment horizons than state and local governments, because they are concerned with leaving something in place for future generations, said Mr. Dushane. As an example, Mr. Haltom, the attorney, noted the Pueblo of Santa Ana in New Mexico set up a fund whose revenue can't be spent until all of the members of the tribal council have passed away.
Some tribes are showing increased interest in setting up those long-term investment funds. Earlier this year, Medallion held an investment seminar for tribal leaders, attended by representatives of the Navajo Nation; the Jicarilla Apache; the Pueblos of Laguna, San Felipe, Santa Ana; and other tribes in the state of New Mexico. It was so successful, the firm plans to repeat it in Arizona in the fall, said Laree Perez, president and chief executive officer.
One problem facing any money manager seeking tribal business is simple logistics: there are more than 250 Indian tribes in the lower 48 states and another 200 Alaska Native tribes, according to the National Indian Policy Center.
Difficult to find the money
Finding out where the money is can be a full-time job: when launching a task force study on the economic status of tribes in 1993, the NIPC noted there is no central source of information.
The lack of centralized sources makes prospecting for clients a daunting task. Native American Advisors' Mr. Parisian says he spent years putting together a database of Indian tribes from contacts in the related federal government agencies, organizations and other sources.
The process of building relationships with tribes is also more intense than for a traditional institutional client, said Walter Niemasik, vice president of Snyder Capital Management. The San Francisco firm manages accounts for the Jicarilla Apache tribe and the Klukwan tribe in Alaska.
He noted the assets available from tribes are fairly small, so they tend to slip under the radar of megafirms, he said. Placements of $10 million to $25 million are large by the tribes' standards.
Given the historical precedents of exploitation by outsiders, the tribes are naturally suspicious of outside firms seeking their business, said Mr. Niemasik. First American Securities' Mr. Herrera also noted tribes are beginning to enact laws stating they prefer to do business with Indian-owned companies.
Indian-owned companies have an advantage in already having some knowledge of the background and culture, but that doesn't guarantee the job, said Nathan Hart, president of Native American Asset Advisers and a member of the Cheyenne. The Oklahoma City fixed-income firm has grown to approximately $30 million in its first year, mostly from tribal allocations.
It takes time to build a level of trust with the tribal governments, said Mr. Niemasik. His seven-year effort has included speaking to high school students and supplying tribes with information on economic development grants and oil and gas investments.
"If you don't want to invest the time and just want to come in and do business, your chances of success are low," he said.