One of the most common questions I get is, “How should I invest my Tribe’s money?” While I do not give investment advice as I am not an investment advisor, I do share my experiences with the complexities of this decision as someone who’s spent years managing the Cherokee Nation’s finances as Treasurer and fiduciary having created the Cherokee Nation Sovereign Wealth Fund. There is no one-size-fits-all answer – it depends on your Tribe’s specific goals, resources, existing strategies, risk tolerance, and more.
In this article, I’ll break down two common approaches: handling investments in-house or hiring an Outsourced Chief Investment Officer (OCIO). I’ll also share some key due diligence questions you should ask to ensure you’re making the right choice for your Tribe.
In this article, I’ll break down two common approaches: handling investments in-house or hiring an Outsourced Chief Investment Officer (OCIO). I’ll also share some key due diligence questions you should ask to ensure you’re making the right choice for your Tribe.
Two Common Investment Approaches: In-House vs. OCIO
When it comes to managing your Tribe’s assets, you generally have two options:
1. Managing Investments In-House: Some tribes choose to manage their investments with an internal team. This approach can give you full control over decision-making and execution. However, managing investments in-house requires substantial resources, including a dedicated team with deep financial expertise, the infrastructure to manage assets effectively, and the ability to perform ongoing and in-depth research and due diligence.
I’ve seen firsthand that for some Tribes, this works really well—especially if they have a strong finance team and the capacity to manage their funds effectively. It can also be a great program to grow Tribal youth as financially literate professionals – talk about true Tribal financial sovereignty! But it’s important to recognize that investment management is a full-time job, and underestimating the complexity of managing investments internally can lead to costly mistakes.
2. Hiring an Outsourced Chief Investment Officer (OCIO): For Tribes that lack the internal resources or expertise to manage their own investments – or simply choose to have thoroughbred professionals on their team – hiring an OCIO can be a smart choice. An OCIO is a professional investment management firm that takes on the responsibility of overseeing your tribe’s portfolio, including managing assets, conducting due diligence, and ensuring compliance with regulations.
An OCIO acts as a fiduciary, meaning their primary obligation is to act in your Tribe’s best interests. This outsourced model allows you to leverage the expertise of seasoned professionals who have access to extensive research, technology, and a broad network of resources. With an OCIO, your tribe gets customized advice tailored to your specific needs, without having to build an internal investment team from scratch.
1. Managing Investments In-House: Some tribes choose to manage their investments with an internal team. This approach can give you full control over decision-making and execution. However, managing investments in-house requires substantial resources, including a dedicated team with deep financial expertise, the infrastructure to manage assets effectively, and the ability to perform ongoing and in-depth research and due diligence.
I’ve seen firsthand that for some Tribes, this works really well—especially if they have a strong finance team and the capacity to manage their funds effectively. It can also be a great program to grow Tribal youth as financially literate professionals – talk about true Tribal financial sovereignty! But it’s important to recognize that investment management is a full-time job, and underestimating the complexity of managing investments internally can lead to costly mistakes.
2. Hiring an Outsourced Chief Investment Officer (OCIO): For Tribes that lack the internal resources or expertise to manage their own investments – or simply choose to have thoroughbred professionals on their team – hiring an OCIO can be a smart choice. An OCIO is a professional investment management firm that takes on the responsibility of overseeing your tribe’s portfolio, including managing assets, conducting due diligence, and ensuring compliance with regulations.
An OCIO acts as a fiduciary, meaning their primary obligation is to act in your Tribe’s best interests. This outsourced model allows you to leverage the expertise of seasoned professionals who have access to extensive research, technology, and a broad network of resources. With an OCIO, your tribe gets customized advice tailored to your specific needs, without having to build an internal investment team from scratch.
What to Look for in an OCIO: Key Due Diligence Questions
Whether you choose to manage your investments in-house or work with an OCIO, conducting thorough due diligence is critical. I’ve learned from my experience as an auditor at KPMG (where I audited asset managers and investment funds) that you can never ask too many questions when it comes to safeguarding your Tribe’s financial future.
Here are some key questions you should ask any potential investment manager, whether they’re internal or external:
1. Has your firm ever been sued or been involved in any fraud schemes?
You want to know the history of any firm you’re considering working with. Have they been involved in any lawsuits or fraud schemes (think Madoff)? This can provide insight into their integrity, trustworthiness, and business practices.
2. What is your due diligence process like?
Every investment firm should have a solid due diligence process in place to vet potential investments. Ask for details about how they conduct research, monitor risk, and make investment decisions. What metrics do they use to measure success? How do they assess the financial health of potential investments? When do they move on from investment decisions?
3. What are your historical returns?
While past performance isn’t always indicative of future results, it’s important to review the track record of any firm or individual managing your money. Ask for historical returns across different time periods, market cycles, and asset classes. Make sure they can explain both their successes and their failures in a transparent manner.
4. What is your approach to risk management?
Every Tribe has a different tolerance for risk, and your investment strategy should reflect that. How does the firm you’re considering manage risk? Do they use hedging strategies? How do they navigate volatile markets? Make sure their approach aligns with your tribe’s risk tolerance.
5. How do you handle conflicts of interest?
A key concern with any investment manager is whether they have potential conflicts of interest. Ask about how the firm ensures that their decisions are always made in the best interest of your tribe. For example, are they compensated in a way that encourages short-term risk-taking, or do they have long-term incentives that align with your goals, such as investing in the same funds they recommend with their own money?
6. What fees do you charge?
Investment management fees can vary significantly, and it’s crucial to understand how much you’ll be paying for the services provided. Ask for a clear breakdown of all fees, including management fees, performance fees, proprietary investment fees, and any hidden costs. High fees can eat into your returns, so it’s important to ensure that you’re getting value for the cost.
Here are some key questions you should ask any potential investment manager, whether they’re internal or external:
1. Has your firm ever been sued or been involved in any fraud schemes?
You want to know the history of any firm you’re considering working with. Have they been involved in any lawsuits or fraud schemes (think Madoff)? This can provide insight into their integrity, trustworthiness, and business practices.
2. What is your due diligence process like?
Every investment firm should have a solid due diligence process in place to vet potential investments. Ask for details about how they conduct research, monitor risk, and make investment decisions. What metrics do they use to measure success? How do they assess the financial health of potential investments? When do they move on from investment decisions?
3. What are your historical returns?
While past performance isn’t always indicative of future results, it’s important to review the track record of any firm or individual managing your money. Ask for historical returns across different time periods, market cycles, and asset classes. Make sure they can explain both their successes and their failures in a transparent manner.
4. What is your approach to risk management?
Every Tribe has a different tolerance for risk, and your investment strategy should reflect that. How does the firm you’re considering manage risk? Do they use hedging strategies? How do they navigate volatile markets? Make sure their approach aligns with your tribe’s risk tolerance.
5. How do you handle conflicts of interest?
A key concern with any investment manager is whether they have potential conflicts of interest. Ask about how the firm ensures that their decisions are always made in the best interest of your tribe. For example, are they compensated in a way that encourages short-term risk-taking, or do they have long-term incentives that align with your goals, such as investing in the same funds they recommend with their own money?
6. What fees do you charge?
Investment management fees can vary significantly, and it’s crucial to understand how much you’ll be paying for the services provided. Ask for a clear breakdown of all fees, including management fees, performance fees, proprietary investment fees, and any hidden costs. High fees can eat into your returns, so it’s important to ensure that you’re getting value for the cost.
Making the Right Choice for Your Tribe
Ultimately, the decision on how to invest your Tribe’s money comes down to finding the right fit for your needs and goals. For some Tribes, managing investments in-house may provide the control and flexibility needed to align with cultural values and long-term goals. For others, hiring an OCIO might offer the expertise and resources required to navigate complex financial markets while minimizing risk.
Investing for your Tribe isn’t just about returns – it can be key to safeguarding the legacy you’re building for future generations. By doing your due diligence and asking key questions, you will be doing the most to create a solid foundation for sustainable growth and prosperity.
Investing for your Tribe isn’t just about returns – it can be key to safeguarding the legacy you’re building for future generations. By doing your due diligence and asking key questions, you will be doing the most to create a solid foundation for sustainable growth and prosperity.
Note: Native Advisory provides strategic and governance insights to support and aid Tribal financial decision-making. We do not provide investment or legal advice. Any investment-related decisions should be made in consultation with qualified financial professionals and legal counsel.
