JAMESTOWN — Local lawmakers say it’s a little troubling that $44 million of North Dakota state investments have ties to Russia, including $8.5 million from the state’s Legacy Fund.
The Legacy Fund is owned by North Dakotans, and the Legislature and citizens of the state should dictate how investments are made, said Rep. Bernie Satrom, R-Jamestown.
“I would say there are 185 countries that are options,” he said. “Or we also have an option, which is really crazy, we could do this thing of actually investing in North Dakota.”
North Dakota investments with exposure to a Russian entity include $8.5 million from the Legacy Fund, $5.1 million from the state pension pool and $2.3 million from the insurance pool – a total of $15.9 million or less than a tenth of 1% of the $19.3 billion in total assets under management, according to Governor Doug Burgum’s office. The North Dakota Board of University and School Lands (Land Board) has approximately $28.8 million invested in Russian-based companies, which equates to less than half of 1% of the board’s total investment assets of more of $6 billion.
The Department of Lands Trust and its investment consultant are reviewing the investments and will develop a strategy for the Land Board to consider on how to approach the investments, Burgum’s office said.
North Dakota’s State Investment Board is responsible for investing the state’s Legacy Fund, which has more than $8.7 billion. The principal financial adviser to the State Investment Board is Callan, headquartered in San Francisco, which advises the board on the selection of fund management companies for the Legacy Fund, public employee pension funds and public insurance.
The State Investment Board will hold a special meeting at 9 a.m. on Thursday, March 3 to discuss the Legacy Fund’s investments in Russia following the country’s invasion of Ukraine.
The board will discuss directives from the U.S. Treasury Department that it has already received and has begun to implement regarding investments related to the Russian Federation, said Rob Lech, vice president of State Investment. Board representing the Teachers’ Fund for Retirement, in an email.
The Legacy Fund is an investment fund that sets aside 30% of the state’s oil and gas revenue that voters approved in 2010. All revenue accrued after June 2017 is transferred to the state’s general fund at the end of each biennium.
Burgum’s office said the state holds a $500,000 bond originally issued by the Russian Federation, but was purchased from a third party in a secondary market, so the proceeds went to the third party rather than to the Russian government. The state invested $914,000 in dollars from the Legacy Fund in Gaz Capital, which is owned by the Russian Federation.
The U.S. Treasury Department has advised U.S. investors to cease all secondary foreign exchange trading involving Russia effective Tuesday, March 1 for bonds issued after March 1, 2022.
Senator Terry Wanzek, R-Jamestown, said Legacy Fund investments will need to be scrutinized more carefully so that investments are not made in foreign entities that do not necessarily share the same human rights values. than Americans and North Dakotans.
“I think that’s something we’re going to have to pay more attention to,” he said. “I know the goal is to get a comeback, but most of us certainly have strong feelings about human life and civil rights and how people are treated.”
Rep. Craig Headland, R-Montpelier, said good investments around the world aren’t necessarily bad, but investing in empires that seek to harm the US economy isn’t a good idea.
“I don’t think we should morally invest with our enemies,” he said. “It seems Russia and the Chinese are now more interested in doing bad things to the world than they are doing good things.”
The State Investment Board and the North Dakota Board of University and School Lands have diversified portfolios that include some exposure to foreign markets, Lech said.
Headland, Satrom and Wanzek supported House Bill 1425 which sets goals to invest more of the Legacy Fund’s principal in North Dakota and requires the State Investment Board to give preference to qualified investment companies present in the state. HB 1425 sets targets for 10% of Legacy Fund capital to be invested in in-state equity investments and 10% in in-state fixed income investments, according to Burgum’s office.
Satrom said Jamestown/Stutsman Development Corp. funded a survey by WPA Intelligence that found a majority of likely voters in North Dakota favored investing more of the Legacy Fund in North Dakota. According to other survey findings, 72% of North Dakotans believed that investing Legacy Fund money in North Dakota could include riskier investments than those found outside the state, 15 % favored investing the entire Legacy Fund in North Dakota and 40% thought there was. there should be no investments of Legacy Fund money outside of the United States
When investments are made in North Dakota and the United States, the economy is built locally rather than in another country, a local tax base is built, and wealth is created in local communities, Satrom said.
“That’s really what we should be doing,” he said. “If it doesn’t demonstrate that, I would say we need to hire new people and a new State Investment Board, and I think we should look at other management companies.”
Wanzek said investments made must be verified and have the potential to show a return. He said an investment in a business doesn’t have to be made just because it’s located in the state.
“They need to be a legitimate business and need to be vetted like most other investments, but hopefully we’ll be looking hard for investments in our own backyard,” he said.
For nearly 30 years, the State Investment Board has supported the Bank of North Dakota Matching Loan CD Program, which is a fixed income strategy designed to provide cost-effective financial support to companies seeking to expand or develop new business opportunities in North Dakota, Lech mentioned.
“The SIB (State Investment Board) has actually increased that commitment on a regular basis and most recently to $400 million at the end of 2020,” he said.
Before the legislation passed, he said the State Investment Board and the North Dakota Retirement and Investment Office were looking for investments in the state. He said the research included presentations from other states that make investments in the state and fund managers who manage investments in the state.
Lech said the State Investment Board took an investment strategy in the state, the North Dakota Growth Fund, and awarded it to 50 South Capital of Chicago, which currently has about $22.5 million committed to it. state enterprises.
The North Dakota Growth Fund is a $100 million multi-stage investment fund that seeks to invest in North Dakota businesses and entrepreneurs, according to its website. The North Dakota Growth Fund aims to invest up to $100 million over an initial five-year investment period to further catalyze the investment and entrepreneurship communities and expand investment opportunities in the State.
“Around the same time, legislation was passed that required targets of 10% of the Legacy Fund’s capital to be invested in equity investments and an additional 10% in fixed income securities,” Lech said. “There are a lot of moving parts, including following the direction of the Client Council, which in this case is the Legacy Fund Advisory Council. The SIB is working to advance these requirements.
Lech said Callan was not a decision maker for North Dakota investments in any capacity. He said Callan is an engaged consultant who provides support to investment professionals at the North Dakota Retirement and Investment Office and the State Investment Board.
“NDRIO (North Dakota Retirement and Investment Office) staff themselves perform significant due diligence to make recommendations to the SIB and the SIB makes investment decisions,” he said.
Headland said his hope for the future would be to have a competition with Callan to get a consultant hired to advise the State Investment Board on choosing fund management companies for the Legacy Fund. He said the Legislature doesn’t make that decision and it’s up to the State Board of Investment to decide.
Satrom said there may be other groups that can advise the State Investment Board better than Callan.
“It should be renewed,” he said, referring to the competition to be the financial adviser to the State Investment Board.
Wanzek said it’s hard to say what the solutions are until the legislature learns more about what’s going on.
“I know there are troubling things that have come up and I think that’s something we need to dig deeper and investigate further,” he said. “…I do not think the fault of those on the council. This is all being brought to light now with some of the world news transpiring as we speak.