Chickasaw Nation kinds its personal PE playbook as gaming revenues sluggish

Oklahoma-based Chickasaw Nation is charting a novel path amongst US tribal entities dealing with down the destabilization of the gaming revenues it as soon as relied on: beginning its personal personal fairness companies.

A confluence of generational, financial and tech-driven developments have challenged the gaming business that has pushed revenues for a whole lot of tribal entities within the US for many years.

“This shift isn’t because we were unhappy with managers… We just feel like economics for us will be better with a direct buy model”

Alan Marcum, Sovereign Native Holdco

“Gaming revenues are something we’re still happy with, but those revenues aren’t going to continue to grow at the pace they’ve done in the past,” mentioned Alan Marcum, who lengthy served as a deputy secretary of the Chickasaw Nation’s commerce division. “Every tribe is experiencing this. Vegas is experiencing this.”

To head that actuality off, the tribe has reinvested gaming earnings for a few years right into a sub-$1 billion LP portfolio. Marcum defined that non-public actual property, conventional power and enterprise funds comprised most of these LP commitments.

But that program’s pacing will likely be restricted going ahead, Marcum mentioned. The tribe is getting extra instantly concerned in actual property and personal fairness funding, managed by an entity known as Sovereign Native Holdco, which Marcum leads as president.

“This shift isn’t because we were unhappy with managers,” he mentioned. “We picked some good ones. We’re in some very nice funds that are run by great managers doing a terrific job. We’re still holding those today, although some of those will time out in the future… We just feel like economics for us will be better with a direct buy model.”

So far, Chickasaw Nation’s strikes have concerned founding PE agency Good Springs Capital by an anchor LP funding in 2023 and the ground-up creation of one other PE agency, Pennington Creek Capital, LLC, in 2024.

The objective, as Marcum described it, is to diversify financially from the revenues of the tribe’s 23 Oklahoma casinos in a method that helps guarantee the standard of life for its greater than 80,000 residents. That tends to be a driver for many tribal entities, Marcum added.

“I feel like we’re a first mover in this space, but there’s some other tribes that are doing a good job as well”

“Some tribes that operate in the gaming space, they take revenues and divide that by the number of citizens and write a check to them. Our tribe, as another example, is not a per-cap tribe, but one focused on programs and services – with a big portion of that being health and wellness care as well as education.”

Native American tribes, which boast sure benefits as buyers because of federal and state tax exemptions, have entered into the personal markets in quite a lot of alternative ways, Marcum mentioned.

“I feel like we’re a first mover in this space, but there’s some other tribes that are doing a good job as well. For other tribes now looking to adopt a model of diversification, the questions are whether you’re going the LP route or the direct sponsor route. And what kind of resources do you have internally or what resources do you want to find to run these portfolios?”

Direct purchase, lengthy maintain technique

Chickasaw Nation’s personal wager is on direct personal fairness offers. Marcum mentioned the purpose is to be long-term holders of established mid-market corporations with regular development – with an instance being Rite within the Rain, a century-old maker of water resistant writing and area group merchandise that was focused for Pennington Creek Capital’s first funding.

The expectation is that this and different investments will supply the potential of dependable distributions over an extended time frame, Marcum mentioned.

“It’s more of a family office-like strategy. A lot of family offices go in and buy those companies that are really strategic with a cashflow model that distributes back to the investor that they can basically hold forever, like a bond.”

“We have to be cognizant of how much you pay for companies through a good due diligence process”

The technique, which Marcum mentioned he doesn’t count on to interchange gaming revenues any time quickly for the tribe, is to search for well-formed portfolio corporations that may stand up to ups and downs in an often-uncertain macroeconomic atmosphere.

That’s the trail the tribe intends to remain on, though the expectation is that it’s going to keep a small LP portfolio related to a few of its current GP relationships as nicely.

And it’s not going to get any simpler, Marcum admits.

“It’s a very competitive space, and so there’s a lot of capital pursuing deployment into this type of strategy. We have to be cognizant of how much you pay for companies through a good due diligence process. Ultimately, we have to understand company growth opportunities and figure out way to de-risk it as well.”