Canada's Indians Pondering How to Invest Land Payouts

New York Times, - Thursday, November 6, 2003

Abstract: People in aboriginal communities in some of remotest parts of northern Canada are learning how to manage multimillion-dollar investment portfolio; 16 aboriginal groups in Canada's Arctic and other parts of country have received huge windfalls from govenrment in Ottawa as part of settlement claims over their ancestral lands; payments to 16 groups will eventually total about 1.6 billion Canadian dollars, or $1.2 billion; another 62 land claims, most of them covering large chunk of British Columbia, including downtown Vancouver, are still in negotiations; latest deal, signed in August, gives 3,300 Dogrib Indians, who call themselves Tlicho First Nation, greater control over area of Northwest Terroritories; Tlicho will receive 152 million Canadian dollars in cash over next 15 years, as well as shares of royalties from two of world's richest diamond mines.

Already adept at surviving frigid winters, trapping beaver and hunting caribou and seals, people in aboriginal communities in some of the remotest parts of northern Canada are learning how to manage a multimillion-dollar investment portfolio.

Since the mid-1970's, 16 aboriginal groups in Canada's Arctic and other parts of the country have received huge windfalls from the government in Ottawa as part of settlement claims over their ancestral lands. The settlements also typically grant the communities a measure of self-government and a portion of royalties from mines and oil and gas wells.

According to the Department of Indian and Northern Affairs in Ottawa, payments to the 16 groups will eventually total about 1.6 billion Canadian dollars, or $1.2 billion. Another 62 land claims, most of them covering a large chunk of British Columbia -- including downtown Vancouver -- are still in negotiations. (Settlements are typically disbursed over more than a decade.)

The latest deal, signed in August, gives 3,300 Dogrib Indians, who call themselves the Tlicho First Nation, greater control over an area of the Northwest Territories almost as big as Switzerland. The Tlicho, whose organization is based in Rae-Edzo, will receive 152 million Canadian dollars in cash over the next 15 years, as well as a share of royalties from two of the world's richest diamond mines.

The land-settlement payouts have ignited a vigorous debate. As Gerry Roy, legal counsel for the Inuvialuit Regional Corporation, described it: "How do you use the financial strength without putting the funds at risk?" The corporation is based in Inuvik, whose population of 3,200 makes it the largest settlement in Canada north of the Arctic Circle.

Political pressure is often intense. "There's a perception that land claims organizations are like governments and that governments are a source of infinite wealth," said Mr. Roy, who moved to Inuvik nine years ago from Vancouver.

According to Statistics Canada, the average income of Canada's 1.4 million indigenous people was 21,435 Canadian dollars, or $15,844, in 2001, about a third lower than the population as a whole. Illiteracy, alcoholism and suicide are abnormally high in Arctic communities and on Indian reservations.

The windfall cash has drawn the attention of money managers eager for a growing bit of business. Ronald L. Jamieson, senior vice president for aboriginal banking at the Bank of Montreal and himself a Mohawk, said, "When it hits the papers that a community is getting a hundred million dollars, a lot of people come out of the woodwork."

And according to Brian Gibbings, a Toronto investment management consultant who advises the Inuvialuit corporation, "Every one of these groups has had a bad experience along the line."

Some of the settlements have spawned sizable business empires. The Makivik Corporation, which had its origins in a settlement covering the Inuit of northernmost Quebec, has parlayed its payout of 90 million Canadian dollars into assets worth roughly double that amount, including two airlines, an equipment rental business, a gravel supplier, and investments in fishing, shipping and other transportation. The group is based in Kuujjuaq, in the far north of Quebec, and its name, Makivik, means "place to stand," or "development," in Inuktitut.

The Inuvialuit group decided early on to set aside 80 percent of its settlement for investment in equities, bonds and other securities, with the remaining 20 percent channeled into venture capital to support local businesses. The profits have so far been enough to pay each of the community's 2,000 members an annual dividend of about 400 Canadian dollars, or about $300.

Still, the corporation ran up big losses in the mid-1990's by investing in emerging-market funds with exposure to faraway places like Pakistan, Russia and Sri Lanka. It also bought a stake in a publicly traded foreign exchange dealer, based in London, which ran into financial difficulties.

Such setbacks have prompted reforms. A growing number of groups are putting stricter mandates in place for their investment arms and have turned to professional portfolio managers.

The Inuvialuit fund and the Nunavut Trust, which administers a settlement that will be worth 580 million Canadian dollars, have joined the Pension Investment Association of Canada, an industry group that aims to improve investment policies and practices. Twice the size of California with a population of less than 30,000, Nunavut was carved out of the eastern part of the Northwest Territories in 1999.

The Inuvialuit corporation has appointed two outside advisers to the board of its investment fund. It sent five trustees to Toronto this fall for professional development courses; among the topics on the agenda was how to manage currency risk.

Mr. Jamieson said aboriginal communities have entrusted a total of about 100 million Canadian dollars to the Bank of Montreal's asset management unit. Like many other portfolios, the Inuvialuit fund, now worth about 142 million Canadian dollars, has taken a heavy hit over the last two years from falling stock prices.

The government in Ottawa has also made a significant change, channeling payments to regional authorities rather than to corporations or trusts. This arrangement, which will apply to the Tlicho settlement, makes community leaders "accountable in a political sense as well as a corporate sense," said Barry Dewar, the director general for comprehensive claims in the Department of Indian and Northern Affairs.

"We haven't had any groups coming back to the government asking us to bail them out," Mr. Dewar said. "I think that's a sign that the funds are being reasonably well managed."

Mr. Roy agreed that was the case with most of the bigger land claims organizations, but he doubted that many smaller groups were adequately prepared to handle their investments. Mr. Roy said his advice to community leaders was to separate investment funds from any political function, and to hire professional money managers.

John B. Zoe, the Tlichos' chief negotiator, agrees. "We'll be seeking advice over the year as to what the safest plan might be for investing the funds," he said.

In spite of the big sums involved, investment bankers and portfolio managers are not beating a path to aboriginal communities doorsteps. "We don't chase them," said Mr. Jamieson at the Bank of Montreal. "They take a long time to take a decision and get comfortable with you." Nonetheless, the bank has opened 17 branches on Indian reservations.

Mr. Roy, who described the Bank of Montreal as "one of the more responsive ones," said that most financial institutions found dealing with aboriginal groups a little nerve-wracking because of their remote locations and the special rules that sometimes apply. For example, under the Indian Act, assets on a reservation, including property, cannot be pledged as security for loans.

Mr. Gibbings, the consultant, said that many bankers and money managers had a more practical concern. A trip from Toronto to Inuvik and back, for instance, takes at least three days, and the regular air fare is 3,940 Canadian dollars. As Mr. Gibbings sees it, "The travel is a bit of a deterrent in terms of marketing to the aboriginal groups."

The success of aboriginal groups in translating land claims settlements into higher living standards is so far hard to judge. Stelios Loizides, a researcher specializing in governance and social responsibility issues at the Conference Board of Canada, said that over the last two decades aboriginals had succeeded in gaining more opportunities "to take control of their destiny and to make their own mistakes." He cited a substantial increase in the number of businesses and rising standards of education.

"The gap has closed, but there's still a gap," Mr. Stelios said. "These things don't happen overnight." Caption: Photos: Across Canada's North, Indian groups are getting big settlements. (pg. W1); Tlicho girls with their bicycles in Whati, Northwest Territories. The Tlicho, also called the Dogrib Indians, recently signed an agreement giving them a $100 million cash settlement and royalties in diamond mines. (Photo by Georgina Franki Fenley); Dogrib Indians met at the recent 12th annual gathering of the Tlicho First Nation at Behchoko, in the Northwest Territories, to sign an agreement giving them control of an area almost as large as Switzerland.

Edition: Late Edition - Final
Section: Business/Financial Desk
Page: 1
Page Column: 1