Port: Connecting some ugly dots about North Dakota’s investment consultants

Some first-rate reporting from Patrick Springer perhaps illustrates why at least some of the board members feel that discussion was necessary.

Last week Springer revealed that Callan, a California-based consultant that manages the state’s investment consultants for the Legacy Fund (yes, they’ve hired a consultant to manage their consultants) has also received payments from most of the companies hired to do the consulting.

Callan “has received payments from 12 of the 14 companies that manage the investments for the $8.7 billion Legacy Fund,” Springer reported.

That’s bad.

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Really bad.

But if we connect some dots, it looks even worse.

During their just-completed session earlier this year, North Dakota’s lawmakers approved an in-state investment program that would direct some of the Legacy Fund’s billions into bonding in-state infrastructure projects and providing capital for in-state business ventures. The legislation also directed that preference be given to money managers from North Dakota.

The idea was to use the Legacy Fund as a way to promote economic expansion and diversification, up to and including who gets the fees for managing the investments.

This program was opposed by some members of the SIB, and board executive director David Hunter engaged in a behind-the-scenes effort to lobby against it. The Legislature passed it anyway, and just weeks after Gov. Doug Burgum’s signature was dry on the bill, the SIB hired a consultant to manage the in-state investments.

One is based in Chicago, if you can believe it, though they’ve promised to work around the in-state spirit of the legislation by opening an office in North Dakota, which is such transparent pandering that it almost seems insulting.

Why did the SIB ignore the Legislature’s request for in-state money managers for the new in-state investment program? One reason given by Lt. Gov. Brent Sanford, who chairs the SIB, is that North Dakota doesn’t have any in-state money managers who are up to the job.

He said as much to me during a recent interview on Plain Talk Live (the pertinent exchange starts at about the 23:00 mark):

If that were true, that would be understandable, but is it true?

According to Springer’s most recent piece on the SIB, the state banking industry says it isn’t true at all.

Rick Clayburgh, president of the North Dakota Bankers Association, said banks in the state with trust departments that provide investment services have repeatedly tried without success to get the opportunity to manage investments for the Legacy Fund,” Springer reports.

Clayburgh makes his industry’s frustration pretty clear: “We’ve been banging our head against the wall for 12 years,” Clayburgh said. “We’ve been very concerned about it.”

Yet, in that same piece by Springer, Hunter alleges that they’ve been inviting in-state bankers to participate. “We really do invite and encourage all investment managers in North Dakota to present data to be considered,” he told Springer.

These statements cannot be true simultaneously, which makes me wonder just how much the members of the SIB really know about how North Dakota’s money is being managed.

Hunter says the state’s bankers are invited and encouraged to be considered to manage the state’s investments, but the state banking industry says that’s not so.

When Springer revealed that Callan had received payments from the money managers it has recommended to the SIB, he wasn’t able to reveal how much Callan was paid by those managers. “Callan asked North Dakota officials to keep confidential the amounts investment managers pay Callan for Callan Institute and Callan College, and those amounts were not provided in response to public records requests from The Forum, with officials citing an exemption to open records law that protects proprietary information in state files,” he reported.

Proprietary information?

Can you name for me a piece of information that’s more pertinent to the public work a consultant is doing on behalf of the State of North Dakota than the financial relationship it has with the companies it is recommending?

If Callan won’t divulge this information to the public, they should be fired.

Full stop.

It’s worth noting, at this juncture that in 2006, Callan paid $4.5 million to the City of San Diego to settle a legal dispute over pay-for-play accusations, though Callan admitted to no wrongdoing and, as a part of the settlement to get the money, San Diego had to release a statement saying Callan did nothing untoward.

At the beginning of this column, I made reference to the SIB discussing policy change that would inhibit the ability of its members to speak to the news media. Part of what prompted the discussion, as I noted in my column, was newly elected Treasurer Thomas Beadle writing a letter to Callan inquiring about the pay-for-play settlement.

Which illustrates an unfortunate point of view from at least some members of the SIB.

They don’t see a problem with this stuff.

They just want to stop talking about it.

To comment on this article, visit www.sayanythingblog.com

Rob Port, founder of SayAnythingBlog.com, is a Forum Communications commentator. Reach him on Twitter at @robport or via email at [email protected].