Governor candidates emphasize transparency, clarity on Legacy Fund investments
Current rules, resources and staffing challenges limit disclosure
All three candidates for North Dakota governor see a need for greater transparency and clarity around the more than $10.5 billion of investments being made under the state’s sovereign wealth fund, the Legacy Fund.
Whether that translates into increased levels of transparency, or simply more education on existing Legacy Fund investment decisions, will ultimately be for the next governor and the state Legislature to determine.
Since North Dakota voters approved the creation of the Legacy Fund in 2010, the state has put 30% of oil taxes into the fund monthly to help provide a revenue stream once that oil is gone.
Few could have predicted how large it has become.
With that growth has come new questions about the administration of the fund going forward.
Rep. Kelly Armstrong, one of the Republican candidates for governor, said the fund needs a lot more transparency on both in-state and out-of-state investments, or voters will eventually go after it.
“If you don’t utilize the money in a meaningful capacity that North Dakota citizens can see, North Dakota citizens are going to come get it,” Armstrong said, mentioning for example debates around potentially using Legacy Fund earnings to reduce or eliminate property taxes.
Lt. Gov. Tammy Miller, another Republican candidate for governor who currently chairs the State Investment Board (SIB) which administers the fund, said she is “all about transparency” when it comes to the Legacy Fund.
Miller said there is already a wealth of information available via the Retirement and Investment Office (RIO) website, in annual and monthly fund performance reports and through open meetings, if citizens are interested in the fund. RIO is the body responsible for investing Legacy Fund monies.
Miller said what appeared to be a missing component, and one the RIO is working towards, is providing more concise information and education on investments for the wider public.
In September, RIO will hold its first-ever investment seminar, which Miller said should “go a long way to help inform and educate” the public about Legacy Fund investments.
Armstrong said he is concerned about Legacy Fund decisions being made by distant investment fund managers that may run counter to state interests related to energy and agriculture, as well as national interests related to real or potential adversaries like Russia or China.
In 2022, the SIB divested from Russian investments that were part of the Legacy Fund following the invasion of Ukraine.
“We have a history of investments that I don’t think North Dakota citizens are overly impressed with,” Armstrong said, noting the Russian divestment.
Disclosure rules
Bismarck attorney Tory Jackson filed an open records request in January with the RIO asking for detailed information on in-state, domestic and foreign investments, and a list of countries where investments have been made.
While the RIO did respond to Jackson’s request with a list of countries and investments, specific details considered confidential, including commercial or financial information related to investments made by money managers, could not be provided under state law.
Armstrong is concerned about a lack of clarity on around $800 million of funds invested in three areas revealed in the records request – developing countries, emerging markets and international markets – arguing greater detail on investments should be displayed “in real time.”
Miller agreed there are possible ways to share more information on a regular basis as well as a list of countries where investments are made, but argued only “a small percentage of our investments” fall into the three areas identified.
Another $2 billion is also listed with domestic money managers with large international portfolios, so looking at where those investments go would require digging into each individual portfolio.
Jackson has since requested an opinion from the office of the attorney general regarding whether further information should be disclosed, though it could take several months for a ruling.
State Sen. Merrill Piepkorn, running as the Democratic candidate for governor, said the biggest problem for the Legacy Fund is transparency about where the money goes once money managers make their investment decisions.
“I think we have a pretty good idea about the companies that are managing it, but then that’s where the transparency disappears,” Piepkorn said. “What are those companies? What are they investing in? That’s what we don’t know, and that’s what the public understands.”
Michael Standaert
That level of detail might not be available to the general public, however.
Armstrong believes the SIB should be the body to provide deeper oversight on these investments, whether any run counter to state or national interests, and on questions around transparency.
“They can sit down and say these are the things we care about, and the Legislature can give guidance,” Armstrong said. “They’re overcomplicating a simple answer and that's what frustrates me, and I think that's what frustrates North Dakotans who want transparency.”
RIO said sharing how an investment manager structures a fund to generate returns reveals their investment strategy – information that can be of significant interest to an investment manager’s competition – potentially putting it at a disadvantage.
A poll conducted by North Dakota News Cooperative in February found 75% of 500 likely voters responding were unfamiliar with how the SIB manages the Legacy Fund, while another 84% believed investment information should be published instead of sought through an open records request.
Norway-level transparency?
Armstrong said North Dakota should emulate Norway’s sovereign wealth fund in transparency by providing real-time information on where money is invested.
RIO noted, as did Miller in an interview, the Legacy Fund is ranked by the Sovereign Wealth Fund Institute as a 10 out of 10 in transparency – the same as Norway’s sovereign wealth fund, and the same as the Alaska Permanent Fund Corporation, another often-compared sovereign wealth fund.
Norway’s fund, Norges Bank Investment Management, is invested entirely in public markets, making deeper disclosure on its website possible.
Private equity holdings and investment manager-specific positions are not disclosed by the Legacy Fund, nor the Alaska fund, due to commercial disclosure rules in each state.
“We don’t have all publicly traded investments, so it’s really hard for us to do that on a regular basis,” Miller said of emulating Norway’s detailed disclosures. “Some of our investments are not valued every day or every minute.”
A database for showing the changes in public market data that can be disclosed without running afoul of confidentiality rules is possible, according to RIO, but would require both additional staff and resources to implement something like a “real-time” ticker.
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