BISMARCK, ND – The State Investment Board (SIB) approved an investment policy today that provides North Dakota’s Legacy Fund with the potential to produce greater returns.
“Together with the legislative changes approved in April, this new investment policy will help us grow the Legacy Fund faster, generate higher returns and better forecast earnings, providing substantial long-term benefits for the citizens of North Dakota,” Lt. Gov. Tammy Miller said.
“Recent state legislation increased the Legacy Fund’s capacity to invest in higher earning investments by scaling in-state equity investments to better align to expected demand and creating a more predictable earnings stream,” Retirement and Investment Office (RIO) Executive Director Jan Murtha said. The SIB is responsible for investment of the fund. RIO coordinates SIB activities.
Senate Bill 2330 established an earning’s rule calculation that sets aside 7% of the five-year average value of the fund’s assets as a baseline for each two-year budget cycle. Previously, earnings were defined as net income excluding unrealized gains or losses, an accounting calculation that RIO’s Chief Investment Officer, Scott Anderson, says can be difficult to predict.
“The legislative changes will allow the Retirement and Investment Office to allocate the assets of the Legacy Fund more effectively which we expect to result in a higher level of earnings and a larger fund size over time leading to a greater capacity for future in-state investments,” Anderson said.
RVK Inc., the Legacy and Budget Stabilization Fund Advisory Board’s investment consultant, projected a compound return of 6.3% that Anderson says would increase the fund’s 10-year earnings by $200 million. The fund’s advisory board determines its asset allocation.
With the fund’s earning distribution now stated as a percentage and a ballot measure on the horizon that would reduce the potential draw on the principal balance, RVK Inc. recommended the forward-looking asset allocation as being more suitable for a perpetual endowment like the Legacy Fund.
“Over the past two sessions, state legislators have worked with the Retirement and Investment Office to develop policies and processes that have put the Legacy Fund in a growth position while continuing to support investment in local businesses and communities,” Rep. Glenn Bosch, chairman of the fund’s advisory board, said. “It required a lot of work on both our parts. In the long run, that time and effort will significantly benefit the people of North Dakota.”
A legislative proposal that will be on the ballot in November 2024 would restrict the legislature’s Legacy Fund principal balance access to 5%. Currently, state law allows for the legislature to spend up to 15% of the principal balance with a two-thirds vote of each house. Since the fund’s inception, only earnings have been transferred to the general fund.
RIO transferred over $486 million in Legacy Fund earnings to the state’s general fund on June 30. These dollars provided North Dakotans with tax relief, paid debt on previously issued bonds, and supported the highway tax distribution fund.
Known as the "people's fund," the Legacy Fund was created by a constitutional amendment that was initiated by the state legislature and approved by voters in November 2010. It is funded with petroleum production and extraction taxes.
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