BISMARCK — After President Donald Trump announced sweeping tariffs on nearly all goods imported into the country during the first week of April, global financial markets went into a perilous downward spiral before rebounding after Trump said he would delay most of the tariffs for 90 days on Wednesday, April 9. But the markets fell again Thursday, and analysts said they expect the uncertainty and volatility to continue while the prospect of tariffs looms.
North Dakota's $12 billion Legacy Fund, the successful 15-year-old financial reserve also known as "the people's fund," which invests the state's oil and gas revenue, was not immune to the record-setting financial losses, the head of the Retirement and Investment Office told a legislative committee on Wednesday.
When asked by a member of the Senate Appropriations Committee if she had a crystal ball when it comes to the markets, RIO Director Jodi Smith declined to predict the future, but she invited him to join her on an activity she said she's doing a lot of lately.
"We're very cognizant of what can happen when the market turns," Smith said. "I think the Legacy Fund lost about a billion dollars last week. Yes, sir. Come take a walk with me on the weekends to try and process that."
"Wow," Sen. Randy Burckhard, R-Minot, responded.
Smith told the committee her office and the fund's investment advisers weren't making any knee-jerk decisions based on the draw-downs and would continue to lean on established policies to determine the fund's asset allocations.
"If my investment team — like Scott Anderson's not walking in stressed out, then I know not to be stressed out, either. The market will ebb and flow, and really what determines the market is how we react to it, so our goal is to not be very reactionary but hold fast to what our beliefs are," Smith said.
Anderson, North Dakota's chief investment officer, echoed Smith's sentiments in an interview with The Forum Thursday afternoon.
"Markets go up, and markets go down. We call that risk or volatility, and it's to be expected. Institutional investors would expect to have 6 to 8% draw-downs two or three times a year, 10% or a little bit more every year and a half, and a 20% draw-down maybe every 7 years. So, seeing this play out in 2022 (when the Fed tightened interest rate policies) and during the pandemic, this one just barely got into bear market territory. It really wasn't a surprising loss in terms of its magnitude," Anderson said.
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A "bear market" is when an index falls by 20% or more for a sustained amount of time.
Anderson said the asset allocation policies established by the Legacy and Budget Stabilization Fund Advisory Board anticipate and expect movements in the market like last week's, and the portfolio is designed accordingly.
"We have diversification as our central tenet, which plays in our favor in times like this," he said. "A long-term view, diversification and really good governance allows these plans to be perpetual funds."
Senate Minority Leader Kathy Hogan, D-Fargo, who serves on the budget stabilization advisory board, acknowledged the eye-popping nature of last week's Legacy Fund losses but said it didn't surprise her.
"This is predictable when you do a broad range of investment," she said. "You can't see that large a market drop without being impacted. Because it's so unpredictable now, we can't overreact."
Assistant Senate Minority Leader Josh Boschee, D-Fargo, said the Legacy Fund loss only fuels his growing concerns about the impact tariffs and other Trump administration policies will have on North Dakotans.
"Obviously, a billion dollars from the Legacy Fund is a significant number, but we also have the teachers' retirement fund, the public employees' retirement fund, foundation aid stabilization fund invested in these markets," he said.
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"As we sit out here and try and wrap up the session, my other concern is, lower oil prices are projected now. Fifty-five percent of our state budget is in oil. When the president talks about 'there is going to be pain,' I'm fearful of what that means for North Dakotans," Boschee said. "... We're trying to be prudent in our decision-making now, but I'm willing to bet we are going to be back here before the end of the year for some sort of special session."
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