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North Dakota Legacy Fund poised to take big step for in-state investments

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Shepherds of North Dakota's oil tax savings will soon make a big move for in-state investments of the $8.1 billion fund.

The 12-member State Investment Board meets Friday to hear presentations from three firms who are candidates to manage an in-state investment program targeting a 3% allocation from the Legacy Fund toward private capital. The program could go as high as 6%.

Fully implementing the program is expected to take months or even years, but a manager and a strategy in place set up the framework. The board is expected to name a manager in coming weeks.

"This is like a first shot at moving forward and taking our first stab at it and trying to get it right," said Lt. Gov. Brent Sanford, who chairs the board.

Thirty percent of monthly oil and gas tax revenue goes into the Legacy Fund, which voters approved in 2010. In-state investments of the Legacy Fund gained steam as a major topic last fall, when the board launched a study for a program.

"We've got to start finding out what's out there," said Rep. Keith Kempenich, R-Bowman, who chairs an advisory panel guiding the Legacy Fund.

State Retirement & Investment Office Executive Director and Chief Investment Officer Dave Hunter said investment opportunities likely would include smaller businesses that need additional capital to grow.

"It's not like a big, public company," he said. "It's a company that's more at its startup stage and ... not starved for capital but could really benefit from the infusion of additional capital."

About 1-2% of the Legacy Fund is invested in North Dakota, but the fund has the potential to go to 8%, including targets of 3% for in-state investments and 5% for the Bank of North Dakota's Match Program, a business loan program for attracting companies to the state.

The board last fall approved a $100 million increase from the fund to the Match Program, raising the fund's commitment to $400 million. About $50 million is "actively invested in the program," Hunter said. 

Insurance Commissioner Jon Godfread, who sits on the board, sees other investment opportunities in the state, such as energy development and drone technology.

In-state investments are "a natural next step for the Legacy Fund as it matures and continues to evolve," he said. But he thinks North Dakota residents are surprised that more of the Legacy Fund hasn't been targeted in the state.

Parallel to the board's work is House Bill 1425 proposed by Rep. Mike Nathe, R-Bismarck. The bill, which passed the House last month 85-8, directs the board to invest up to 20% of the Legacy Fund in the state, putting half in equities, or investing in companies in the state, and the other half in infrastructure loans to local governments and other development projects through the state-owned bank, Nathe said.

He said it's "time we start investing in ourselves."

"We have extreme infrastructure needs. We have industries here in North Dakota -- energy, ag, tech -- that have extreme capital needs," Nathe said. The bill awaits a Senate vote.

Godfread said the bill and the board's work "marry up very well."

"We're starting the process of the State Investment Board to be able to respond to 1425 if it were to be signed by the governor," he said. "I think they all work pretty hand-in-hand, and 1425 is really the Legislature's voice and opinion on what those targets should be."

Hunter also said the bill "aligns" with the board's work, noting a minimum 3% of the Legacy Fund that would be targeted "with a primary strategy of investing in emerging or expanding companies in the state," according to the bill.

"Any way we can find to continue to make sure that the dollars are working for us makes all the sense in the world," Hunter said. "End of the day, we seek to get the best investment opportunities we can, and we want to make sure that we find the best investment opportunities here in North Dakota as well."

Reach Jack Dura at 701-223-8482 or jack.dura@bismarcktribune.com.

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