North Dakota's newly created trust fund for oil taxes has had thin earnings, but the results are in line with a conservative investment philosophy that excludes stocks, money managers said Thursday.
The chairman of an advisory board that drafted the Legacy Fund's investment plan said its details could be revisited after North Dakotans decide the fate of a proposed constitutional amendment to abolish property taxes. The amendment, called Measure 2, is on the June 12 primary election ballot.
The fund had almost $352 million in oil taxes on Wednesday, state Treasurer Kelly Schmidt said. When investment earnings were included, its balance was $353.1 million, said Darren Schulz, deputy chief investment officer for North Dakota's Retirement and Investment Office.
Schulz said Thursday the Legacy Fund was on track to earn a 2.5 percent annual return. It is invested in short-term U.S. bonds, including Treasury debt and bonds guaranteed by government agencies, he said.
"This is in line with what we expected," Schulz said.
North Dakota voters approved the fund's creation in November 2010, when they endorsed a constitutional amendment that requires setting aside 30 percent of North Dakota's tax revenues on oil and natural gas production.
The amendment bars the Legislature from spending any of the fund's assets until June 2017. After that, a two-thirds vote of the North Dakota House and Senate is needed to spend any of the fund's principal. Lawmakers may not withdraw more than 15 percent of the principal every two years.
North Dakota's burgeoning oil production has provided a gusher of money for the fund. The state's March production of 17.8 million barrels is almost triple its output of three years ago.
Analysts initially estimated the Legacy Fund would have a $618 million balance by June 30, 2013, when the state's current two-year budget period ends.
Since the first payment into the fund was made last September, monthly deposits have averaged $39.1 million, records show. Should the trend hold, the fund's balance would exceed $860 million in June 2013.
"The oil production is really ramping up. It all depends on that," said John Geissinger, director of the Retirement and Investment Office, which oversees how the fund is invested.
An investment advisory board, set up by the Legislature last year and headed by Sen. Randy Christmann, R-Hazen, decided in December that the Legacy Fund should be invested exclusively in low-risk bonds.
"We didn't want to take a chance on losing any of the principal," said Pam Sharp, the state budget director, who is a member of the advisory panel.
Christmann said the money needed to be cautiously invested since it's unclear whether the Legislature will want to spend some of the fund as soon as lawmakers are allowed to do so.
"We can look at what we can do to improve the returns, and yet be cautious," Christmann said. "At least for my vote, (the strategy) is going to have to be something very conservative. It isn't just money we can invest recklessly."
Christmann is the assistant Republican majority leader in the North Dakota Senate and the GOP's candidate for the state Public Service Commission this fall. He is competing with Democrat Brad Crabtree for a spot on the three-member utility regulatory board.
An oil tax trust fund that was established by the state of Alaska in 1976 had a similarly cautious beginning to its investment policy, said Laura Achee, a spokeswoman for the Alaska Permanent Fund Corp.
For the first six years of its existence, the fund was limited to investing in bonds, Achee said Thursday.
Lawmakers later broadened the fund's options to include stocks and real estate. Investment decisions are now made by the Permanent Fund's board, and its portfolio includes stocks, bonds, real estate and stakes in private equity ventures, the fund's financial disclosure filings say.
On March 31, the fund had $42.1 billion in assets.
"We're in a very different place than we were," Achee said.