Tuesday, June 16, 2015

Fees, As A Percentage, More Than Doubles To "Manage" North Dakota's Legacy Fund, OMG; Investing In High-Risk Equities, OMG -- June 16, 2015

April 16, 2013, I posted:
The Bismarck Tribune is reporting.

Some of these data points were provided at the linked article:
  • the Legacy Fund gets 30 percent of the state's oil tax collections
  • none of the Legacy Fund money can be spent until 2017; will require 2/3rds vote of legislature to spend it
  • the money is stashed under a mattress; it is not invested
  • April deposits were $80.5 million.
  • the fund was begun in September, 2011 -- about 18 months ago, I guess
  • the fund is slightly ahead of projections: original projections -- $620 million by June 30, 2013
Any safe utility pays 3%. Three percent of $1 billion = $30 million per year. Otter Tail pays 3.8%; MDU pays 2.8%.

So, not investing this money is costing the state $30 million per year.

Flaring is costing the state $26 million in tax and royalties per year.

And so it goes. 
I posted more than once that the state's decision not to invest Legacy Fund money was crazy. I never used the word "criminal."

Someone must have gotten the message. Today, The Dickinson Press is reporting:
A more diversified investment strategy is paying off for North Dakota’s $3.2 billion trust fund for oil and gas tax revenue, bringing a higher rate of return for the state but also higher fees paid to investment managers, officials said Monday.
After management fees were paid, the Legacy Fund earned 5.72 percent for the year ending March 31, up from 3.93 percent the previous year.
That’s still below the long-term goal of 6.4 percent that was set when the board adopted the new investment strategy in July 2013, hoping to see a better annual return than the 1.6 percent earned in each of the fund’s first two years.
Lawmakers can’t spend the fund until July 2017, and even then, spending the principal will require two-thirds approval in each chamber of the Legislature.
As of April 30, 2015, the fund had collected more than $3 billion in deposits and about $242 million in investment earnings, for a total market value of $3.26 billion.
Management fees climbed from roughly $1.1 million to $4.9 million between fiscal years 2013 and 2014, which translates to an increase from 0.13 percent to 0.27 percent of the fund’s average market value.
Maybe it's just me, but the writer's fascination with a 0.27% fee seems a bit misplaced. I would love if all my investment fees were that low. [The fees are expected to increase to 0.5% next year.]

And then, of course, those pesky higher-risk equities, like ATT, MDU, and GE:
The transition from short-term bonds to higher-risk stocks, bonds and real estate wasn’t completed until January, and the 5.72 percent annual return through March was better than the 5.39 percent benchmark for that time period.

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