Investments by Navajo Nation
fall $120 million
Despite decline in portfolio,
officials say tribe in better shape than most

Copyright © 2008
Gallup Independent
By Kathy Helms
Diné Bureau

WINDOW ROCK — From October 2007 through Tuesday, the Navajo Nation’s investment portfolio had declined $120 million, but because of its diversification strategy, the Nation has not taken a hit like much of corporate America.

That was the good news, Controller Mark Grant and Marsha Beard, an investment adviser with R.V. Kuhns & Associates of Portland, Ore., related during Wednesday’s special meeting of the Budget and Finance Committee.

Grant said the Nation’s portfolio had a market value of $1.3 billion around March, but because of market fluctuations, that number had come down to $1.2 billion by Aug. 31.

“Since Aug. 31 the value of the portfolio has come down to $1.194 billion, a further decline of $78 million,” he said, but stressed that those are unaudited numbers.

The exposure the Nation had to the failed Lehman Brothers was approximately $2.8 million, and $2.3 million to AIG. The exposure to Lehman Brothers through bonds, some of which have been sold, was at $404,524 in September. “The exposure in AIG is approximately $500,000 right now,” Grant said.

He held up a bar chart showing recent Dow Jones declines and rebounds. “What you need to see from this chart is there is going to be a lot of pressure to sell while the market is down, but if you sell, you’re going to miss out on these increases the next day. When the market dropped $64 million back in 2000, if we had sold out our positions, we would have lost out on nine years of ‘up’ market.” he said.

“When the market crashes, you really have no defense because everything will crash. All you can do is ride the markets down but stay diversified. As long as we’re diversified, when the market goes back up, then our portfolio value will also go back up with the market.”

Beard told the committee that the Nation has added some risks through equities over the years, “but because of your diversification you’re not completely in equities, so you’ve been able to grow without taking undue risks. ... We encourage our clients to focus on the long term and not short-term market volatility. I would encourage you to be patient and look for other opportunities to diversify.”

B&F’s Pete Ken Atcitty said panic, at this point in time, seems unnecessary. “Really, there’s no need too change anything.”

Grant said that if the Nation were in a position to where it had to sell some securities to raise money, this would be a bad time to do it because the price is down. “We’re working off existing money. We’re not having to sell securities to fund our operations. We’re not liquidating anything out of our portfolio, and we don’t need to.”

Unlike Navajo, many companies are having to do just that, Beard said. “You’re in a position of not having to do anything, which is a lot better than corporate America.”

Lorenzo Curley did not share the same sentiment. “About a year ago, we were told the red flags were starting to show. I wonder why that wasn’t taken into consideration. I wonder why something wasn’t done. We’re turning people away, telling them we don’t have money. It’s not acceptable.”

Jonathan Nez asked whether international investment is safer and was told by Beard that non-U.S. equities have fallen more so than domestic. “We do believe that having a small investment in international is a good idea, but recommend you do it over time.” The Nation’s investment in international equity was down about 9 percent in August.

September’s numbers aren’t in yet.

B&F Chairman LoRenzo Bates said the question of the $120 million decline is likely to come up during the Oct. 15 special session with the Nation’s money managers. “Is there ever a point where somebody says, ‘Now is the time to get out?’ Where do you make that call?”

Grant said disaster planning is always part of the management of an organization. “We have evacuation plans, safe routes, and safe houses to go to — but unfortunately, for the portfolio, we have not identified a point where we would want to get out of the market. That may be something we would look at.

“The only thing that I would fall back on is that if our portfolio fell to a position where we would want to liquidate it, probably the whole world would be crashing at that point in time and we probably should start moving toward the canyon. But because our portfolio is diversified, there’s no point where we would think of getting out of the market,” he said.

Navajo Nation Vice President Ben Shelly told the committee the former B&F committee’s strategy was to invest in international equity management and real estate. “The idea was the teeter-totter thing — domestic stock and international stock. When one of them goes down, the other one comes up. But right now, they’re both down so that teeter-totter thing is not working.”