(Bismarck, ND) -- Governor Burgum signed into law Thursday a bill brought forward this session that encourages investment of Legacy Fund dollars directly into the state.
The bill, which is part of a group of Legacy Fund bills, designates 20% of the Legacy Fund principal (roughly $1.4B) for investment in North Dakota. The goal is to change the current investment strategy to better align with what the people of North Dakota expect: principal preservation while maximizing total return and providing direct benefit to the state.
Currently, the State Investment Board oversees the investment of the Legacy Fund and uses fund managers to invest these dollars at the direction of the Legacy and Budget Stabilization Advisory Board. The existing Legacy Fund investment allocations include 50% going to equity investments (30% domestic and 20% international), 35% to fixed income investments, and 15% to real assets. Only 1.2% is currently invested in state through a Bank of North Dakota CD match program.
The new law requires the LBSAB to set a principal target allocation of 10% to fixed income and 10% to equity investments within North Dakota. The fixed income portion would target 40% for infrastructure loans to political subdivisions and up to 60% (with a minimum of $400 million dollars) designated to the Bank of North Dakota's CD match program. Any remaining amounts must be designated for other qualified fixed income investments within the state. The other 10% is targeted for equity investments in the state, of which 3% may be targeted for investment in equity funds, venture capital funds, or alternative investment funds, with a primary strategy of investing in emerging or expanding companies. Equity investments must have a benchmark investment return equal to the five-year average net return for the legacy fund (currently 5.55%). These North Dakota investments would be managed in the same manner as all other state investments through the State Investment Board except they must give preference to North Dakota qualified investment firms and financial institutions.
State Representative Mike Nathe, who was the prime sponsor of the bill, says the law will provide much needed capital for economic development projects. “Access to capital is a major hindrance to companies wanting to develop projects in the state. We’ve lost out on some great opportunities here because of lack of access to capital. This law will give the state the ability to direct capital to qualified projects in North Dakota, which in turn will have positive economic impacts that go beyond your basic return on investment. We’re talking more jobs, higher wages, and increased tax revenue.”
Senate Majority Leader Rich Wardner agrees that it is time to start investing in North Dakota. “Other states and countries are benefitting from our Legacy Fund dollars. It’s time to put some of this money here and invest in people and projects that support our state and industries.” Insurance Commissioner Jon Godfread, who helped conceptualize the bill added, “this is the true purpose of the Legacy Fund—it’s not a pension fund—it’s meant to bring direct and long-lasting benefits to the people of North Dakota.”
The law will go into effect August 1st, but the State Investment Board will likely begin revising investment strategy prior to that date.