Suppose your financial adviser refused to show you the breakdown of your investment portfolio. That would be unimaginable. But that’s the position the State Investment Board has allowed to happen to a big portion of the Legacy Fund.
. That type of investment offers certain advantages, including lower costs and diversification.
But they also come with some very real disadvantages, including a lack of transparency and a lack of control, with little or no input on investment decisions. They often also involve liquidity risks, since the funds often invest in assets that are not liquid, meaning the Legacy Fund has less flexibility.
These are significant drawbacks for a fund that is made up entirely of taxpayer money, almost a third of the revenues the state of North Dakota collects from oil and gas activities.
The lack of transparency is unacceptable for such an important investment of taxpayer dollars. The Legacy Fund is a sovereign wealth fund that should be used to develop and diversify the state’s economy for the benefit of citizens for the day when the oil wealth stops flowing.
The State Investment Board’s staff arm, the Retirement and Investment Office, has refused to release specific information about how the $3.2 billion in commingled funds is invested.
That leaves a huge informational black hole obscuring how Legacy Fund dollars are invested. State investment officials take the position that the commingled funds are exempt from open records law because they contain proprietary business or financial information. Their refusal to disclose details about the funds is the subject of a pending legal opinion by Attorney General Drew Wrigley.
If, in fact, officials’ hands are tied by confidentiality contracts they signed with their money managers, there’s a simple solution. They can fire those money managers when the contracts expire and hire others who are willing to live with the transparency that should be part of a public investment.
Another huge problem: By investing heavily in these commingled funds, the State Investment Board has surrendered control over a sizable portion of the Legacy Fund’s portfolio. In fact, it’s very possible that one reason investment officials refuse to disclose details about these commingled funds is because they simply don’t know the particulars of how $3.2 billion is invested.
Think about that. It’s a clear sign that the State Investment Board has lost control. It is letting paid, out-of-state money managers steer the Legacy Fund. Of the board’s 13 members, most represent interests such as public employees and teachers — that’s appropriate for overseeing pension funds, but not the Legacy Fund.
Only two of the board members are financial professionals with investment expertise. Importantly Gov. Kelly Armstrong is chairman of the State Investment Board, and appoints the other members.
That means Armstrong owns this issue — and he is the person who can fix it, if he takes charge, instead of being another caretaker. He has the opportunity to turn the Legacy Fund into what it should be, a vital tool in developing and diversifying the state’s economy. This could be his lasting legacy.
Editorials represent the views of Forum management and the Editorial Board.
