Dennis: Like Alaska, put part of ND's oil-tax fund in stocks
A billion here, a billion there ... And pretty soon, you're talking about the Alaska Permanent Fund, which reached a new high of about $45 billion at the end of March.
North Dakota may have topped Alaska in oil production, but North Dakota's oil tax "Legacy Fund" has a long way to go before it catches up with its Alaskan sibling.
The North Dakota fund is closing in on $1 billion, The Associated Press reported. That's a lot of money, but Alaska's mammoth fund -- which last year, sent out checks for $878 to every Alaskan -- shows the real potential of a fund that's well-managed over time.
With this in mind, it's worth considering the investment philosophy that governs the Alaska Permanent Fund, considering the fund's long-term success and the fact that North Dakota's fund officers now are debating whether to buy stocks with a portion of the North Dakota fund.
As the AP reported, "the seven-member North Dakota Legacy Fund advisory board, created by the Legislature, now wants to build on the fund with a broader investment policy by placing 50 percent of the money in stocks and other types of investments."
That's old news in Alaska, where the Permanent Fund's managers have invested conservatively in the stock market for decades.
Here's the philosophy of the Alaska fund's manager, the Alaska Permanent Fund Corp. and its board: "One of the most important things that the board does is to review, adopt and monitor an asset allocation that achieves a 5 percent (above inflation) rate of return in accordance with the Prudent Expert Rule.
"The Prudent Expert Rule charges fiduciaries to act with discretion and intelligence, to seek reasonable income, preserve capital and, in general, avoid speculative investments."
That's an utterly reasonable philosophy, especially because the managers of the North Dakota fund are talking about putting only 50 percent of the fund into stocks and similar investments.
As Alaska's experience shows, it's entirely possible to manage a sovereign wealth fund for long-term and dependable growth. Prudence, conservatism and care are the keys.
Using those watchwords, Alaska's fund managers started investing in stocks in 1983, then went 19 years before experiencing a negative annual return, which happened during the bear market of 2002. The process isn't risk-free. But the risk is moderate, and Alaska's success at managing it shows that the job can be done. North Dakota should make the change.
Dennis is the opinion editor of the Grand Forks Herald, which is owned by Forum News Service. Email him at firstname.lastname@example.org.