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052518-nws-legacy-fund

Dave Hunter, executive director of the North Dakota Retirement Investment Office, presents the latest information on the state's Legacy Fund to members of the Legacy and Budget Stabilization Fund Advisory Board on Thursday at the state Capitol in Bismarck. In the background, from left, is Rep. Jim Dotzenrod, D-Wyndmere, Tax Commissioner Ryan Rauschenberger and Eric Hardmeyer, president of the Bank of North Dakota. 

Since its inception, total net earnings of North Dakota’s Legacy Fund have exceeded $1 billion, according to a report to legislators Thursday.

Dave Hunter, executive director and chief investment officer of the state Retirement and Investment Office, presented the report to the Legacy and Budget Stabilization Fund Advisory Board, followed by a consultant’s report on an asset allocation and spending study of the Legacy Fund.

Hunter also told board members that a $62 million deposit Monday brought the state’s Budget Stabilization Fund to about $100 million. State Treasurer Kelly Schmidt said that deposit was exciting and reassuring after the rainy day fund’s depletion.

“Just like every North Dakotan, you’re setting aside that emergency fund so if the furnace blows up or the air conditioner goes out, you’ve always got something there, and the Budget Stabilization is that for the state of North Dakota,” she told the Tribune.

Monday’s deposit to the Budget Stabilization Fund wasn't to occur until July, legislative budget analyst and auditor Allen Knudson told the board. Better than expected oil production and revenue helped the bump.

"This here, it just shows you what the strength of the oil production is out in western North Dakota," board chair and Rep. Keith Kempenich, R-Bowman, told the Tribune. "Prices are helping but also production didn't fall off ..."

Fiscal analyst Chris Kadrmas told board members that North Dakota’s average daily oil production from biennium-to-date is 23 percent ahead of forecast, while average oil price per barrel from biennium-to-date is 6 percent ahead of forecast.

Meanwhile, the Legacy Fund has received monthly deposits in excess of $50 million for most months this calendar year—a number not seen since August 2015. Legacy Fund dollars are derived from 30 percent of state oil and gas tax revenue, which declined in recent years due to sagging oil prices.

Hunter’s report noted the Legacy Fund exceeded $5.3 billion as of March 31, including its $4.3 billion principal and a little more than $1 billion in earnings. Schmidt said the earnings represent a psychological mark but a milestone nonetheless.

“I think it shows that we’ve been careful in risk and we’ve been responsible in our investing, and a billion dollars is something to be proud of,” she told the Tribune.

Kempenich said the earnings milestone was unexpected from the fund’s early years, before a new investment strategy for asset allocation in 2013.

“I remember in committees when these were being tossed around, they were hoping that we would have $1 billion in principal by 2017 and that we might have earned $100 million in it, and it’s quite a bit better than that,” he told the Tribune. “But the oil has done well and the earnings have done a lot better than what we’ve had.”

Paul Erlendson, a consultant from investment consulting firm Callan, presented the study on the Legacy Fund, which calculated a number of projections under certain scenarios for the fund out to 2038, including oil prices, daily barrel production and spending policy.

Erlendson said his firm recommends the Legacy Fund’s asset allocation stay its course.

“If you agree with us that these two competing interests of stability of distributable income and long-term appreciation are equal weighted, if those two are equal weighted, then we think leaving things where they are is just fine,” he told the board.

The Legacy and Budget Stabilization Fund Advisory Board voted unanimously to recommend the State Investment Board keep the Legacy Fund's asset allocation as is. The SIB is expected to vote as such after Callan's report at its meeting Friday.

Reach Jack Dura at 701-250-8225 or jack.dura@bismarcktribune.com.

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Crime and Courts Reporter