North Dakota produces more oil than Alaska. In fact, at 575,500 barrels per day, the state’s oil output is second only to Texas. Is it any wonder, then, that North Dakota has recently launched a new sovereign fund?
In September 2011, the state made its first deposit – of $34 million – into the new “Legacy Fund”. And, by June of this year, the LF already had amassed $400 million with forecasts that the fund could be worth $1 billion by the end of 2012 and close to $2 billion by June 30, 2013.
What’s even more eye opening is the fact that these forecasts are based on the assumption that oil will remain at $70 per barrel. It’s currently around $80; so these numbers could grow larger still.
All of this means that we may have an important new resident on the Avenue of Giants: ND’s Legacy Fund. So let’s dig in a little bit and see if we can get a better understanding of this sovereign fund’s operations and objectives. Here are some of the basics:
- The Legacy Fund was created through a 2010 ballot initiative.
- The Legacy Fund’s over-arching rationale is to preserve some of the finite oil and gas wealth for future generations.
- The LF receives 30 percent of oil and gas State tax revenue.
- None of the fund’s assets can be spent until 2017.
- After 2017, only the interest can be used for general budgetary spending (with some exceptions in times of crises - see below).
- Any expenditure of the fund’s principal will require a vote of at least two-thirds of the members of the Legislative Assembly.
- And even then the Assembly can only spend 15% of the fund’s principal during any biennium.
- The fund is invested entirely in fixed income assets, though the Board anticipates including equities in the asset mix at some point.
- The State Investment Board will take responsibility for managing the assets of the Legacy Fund (in much the same way AIMCo has taken responsibility for managing the assets of the Heritage Fund).
Anyway, those are the basics. It’ll be fascinating to see this fund grow over time!
