Why this Native American tribe is betting on direct PE

Mno-Bmadsen is not your typical private equity investor. Its seven staff essentially serve as a family office for the Pokagon Band of Potawatomi Indians, tasked with re-investing a portion of gaming profits from four casinos to deliver generational wealth for an estimated 5,600 citizens.

The Michigan-based fund plans to double its $50 million of invested assets under management by December 2019 through direct investments in private equity, chief financial officer Julio Martinez, who oversees investments, tells Private Equity International.

Martinez served as CFO at Florida’s Demetree Family Office, as well as the Confederated Tribes of Grand Ronde in Oregon and Miccosukee Tribe of Indians in Miami prior to his appointment at Mno-Bmadsen in 2016.

Native American tribes and their corporations are exempt from federal taxes. This, in conjunction with a lack of fees and carry that accompany private equity fund commitments, makes direct investing an appealing prospect.

“We enjoy all the tax benefits that the tribal government does. As you begin to analyse multiples of EBITDA or future cashflow our calculation is a little bit different and we can be more aggressive on pricing because of that,” Martinez says.

Mno-Bmadsen was formed in 2012 as a holding company targeting majority buyouts. Its portfolio includes an engineering services group formed of three individual acquisitions, a manufacturing business that it created from two separate companies and a commercial real estate developer.

Despite its enthusiasm for directs, the company has not ruled out fund commitments entirely, Martinez adds. “I’m considering participating in a fund partly because, in addition to the expected return, we’d be able to leverage the relationship by accessing the GP’s market research.”

Mno-Bmadsen is aiming to deliver a 10 percent internal rate of return by 2020 and mid-teens by 2021. The firm has so far reinvested its profits, but when it reaches a certain level of profitability the tribal government will determine their use, which could be for Pokagon housing, education, healthcare or the court system. It has historically received an annual sum to invest from the tribal government.

The vehicle’s motivation for going direct is not solely fiduciary. Its Pathways programme provides tribal citizens with access to training, internships and jobs through its portfolio companies.

“It’s a more holistic approach than simply a cash dividend distributing philosophy,” Martinez notes. “That’s why we don’t flip out of investments or seek to terminate them. Funds have a termination date and that’s not our strategy, it’s not why we were created.”