Having served on the State Investment Board on behalf of Governor George Sinner, I have had a continuing interest in the $8 billion pot of gold accumulated in the state treasury from oil revenue.

The Fargo Forum and KX Television have been looking for a smoking gun in the State Investment Board, wondering if North Dakota is being well served by consultants that have worked for the state for two decades.

Because the financial agreements between the Investment Board and the consultants are exempt from the North Dakota open records law, the search has been slow and cumbersome. Some of the basic information is not available to the searchers.

Support for in-state investing

One of the major complaints about state investments has been the failure to invest some of this $8 largesse in North Dakota. In its report, KX has cited surveys that indicate broad public support for investing more of the money within the state.

One of the fact finders, according to KX reports, has focused attention on some of the out-of-state investments which, to ordinary citizens, look like malfeasance, if not worse.

KX reports that Fargo attorney Luke Heck found investments in 89 countries, including 37 different investments in China, many of which are “linked to the Chinese Communist Party.”

Focusing on yield

When the state hires investment advisers, the Investment Board keeps looking at the return on investment. That being the case, the consultants look to investments that yield the greatest return. At one time, we fired an underperforming money manager who was earning a petty yield 26%. Other managers were earning more.

This motive is in conflict with the complaint of failure to invest in North Dakota. The consultants can’t produce strong performance records with investments in North Dakota. That’s a truth we find hard to accept.

KX asked Rep. Keith Kempenich who had chaired the Legacy Fund Advisory Board about Callan’s influence with the Investment Board. Kempenich noted that the Board vote on issues was almost always 11-0.

Go along with experts

The reason votes are unanimous is because no one on the Board has the expertise to second guess others in the complex game of investing. As a Board member, I had no qualifications when it came to actual investing. We always went along with our home investment adviser who worked in unison with the out-of-state consultants.

Just because a person is elected to a state office doesn’t mean that he/she knows anything about investing. The primary job of the Investment Board and its resident consultant is to find the best investment brains available to manage its portfolios. That’s the extent to which a Board of 11 amateurs can function.

Get outside look

If there are questions about the secondary relationships of Callan that may be adverse to the interests of North Dakota, the Board ought to hire other qualified investors to scan the investment program with emphasis on integrity if that is the concern.

After all, $8 billion of investments is a lot of money and it may be worth paying for an independent review to deal with suspicions and doubts.

There is strong sentiment in North Dakota for using the Legacy Fund for in-state investments.

Carve out $1 billion

Because of this sentiment, the Board ought to leave $7 billion for yield investment but carve out $1 billion for an in-state venture capital program with expectations different than high yields. We can afford it.

North Dakota communities have had a lot of experience with cities and counties underwriting failures – which are bound to happen in the venture game. The $1 billion for in-state ventures must be structured so that professional judgment controls decisions and not local politics or politicians.