Native corporations equity portfolios shrink: altered strategies, market tumble, factors of decline.

• Author: Liles, Patricia
• Position: NATIVE BUSINESS

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Since last fall's global financial market tumble, investors worldwide experienced substantial portfolio declines, including a number of Alaska Native corporations. Many Alaska Native corporations hold millions of dollars worth of equity and bond assets and count on returns from those investments to contribute to their annual revenue stream.

DOYON DIVERSIFIES OUT

"We are an operating company, not an institutional investor. The market turmoil of last year drove it home for us," said Norman L. Phillips Jr., president and CEO of Doyon Ltd., the Interior Alaska Native regional corporation headquartered in Fairbanks.

Doyon's experienced a substantial decline in revenue contributions from its passive investment portfolio for fiscal year 2008, which ended Sept. 30. According to the corporation's 2008 annual report, Doyon's portfolio lost $444,000 in 2008, compared to a $13.5 million gain in 2007 and a $16.6 million gain in 2006.

That's despite a "well diversified" portfolio that was spread among small, mid and large cap funds, growth and value stocks, foreign and private equity investments, and government and corporate bonds, according to Daniel S. (Toby) Osborn, senior vice president and chief financial officer at Doyon.

"It was almost unique in investment annals--diversification brought no significant relief. Every single category of our investment portfolio declined substantially," he said, during a telephone interview in mid-May.

But Doyon's loss in revenue and declining value of those financial assets could have been substantially more. In early 2008, Osborn and other Doyon executives were anticipating a "lackluster year in investment returns" and instructed the corporation's financial managers to begin liquidating about a fourth of the portfolio.

"We had withdrawn roughly $50 million from our investment portfolio to be used in our operations. We derived the conclusion that we would not be making money in the investment portfolio that year," Osborn said. "We could use those funds to either reduce debt, on which we would be paying 4 percent to 5 percent interest, or to invest them directly into operations, which have been expanding, and there is a continual need for more capital there. In retrospect, we certainly wish we had reduced the portfolio by a higher amount ... we had not anticipated the degree and breadth of decline that we experienced."

With its subsequent financial investment in its own corporate operations...