By Muskan Arora
The $24B North Dakota State Investment Board is considering a significant shift in its portfolio, weighing a higher allocation to private equity and private debt alongside a reduction in global equities, as part of a revised strategic asset allocation plan.
According to meeting materials from its recent investment meeting, the board is also eyeing a cut to its target allocation for U.S. high-yield corporate bonds.
Consultant NEPC presented the board with two proposed mixes under the updated asset allocation strategy. Both options recommend decreasing exposure to global equities and U.S. high-yield bonds.
The distinction lies in the size of the private equity allocation: Mix 1 proposes raising the target to 15%, while Mix 2 suggests a more modest increase to 10%. Additionally, Mix 2 includes a hike in the U.S. Aggregate Bond allocation within the fixed income segment. NEPC has recommended the board adopt Mix 1.
“Mix 1 offers improved plan financials—lower risk and higher return—over the long term relative to current policies for all six plans,” NEPC noted in the meeting materials.
If adopted, the shift would double the private equity target to 15% from 7%, and increase private debt to 7.5% from 3.5%. Global equity would fall to 40% from 51%, while U.S. high-yield bonds would be reduced to 2.5% from 3.5%.
North Dakota’s public markets team outlined several headwinds facing the U.S. equity portfolio, including lingering effects from former President Donald Trump’s tariffs. The tariffs “have increased federal revenue but are projected to raise consumer prices and slow GDP growth,” according to the materials.
Meanwhile, a weakening U.S. dollar has created a tailwind for international equities. International large-cap stocks returned 17% in the first half of the year, outperforming their U.S. counterparts, which returned 8%.
During the first half of the year, the plan terminated its investment in Atlanta Capital High Quality Small Cap and hired WorldQuant US Large Cap as a replacement, the materials revealed.
“Fluctuating inflation and ongoing ambiguity about the Fed’s timeline for cutting interest rates fueled market volatility,” the board materials stated. “Equity market concentration in mega-cap stocks raised diversification concerns.”
In terms of private market activity, the board committed $35 million to OrbiMed Royalty and Credit Opportunities V, a fund focused on royalty and credit investments in approved healthcare products and services. An additional $60 million was committed to Chicago Pacific Founders Fund IV, which targets growth equity and control buyouts in the healthcare sector.
The North Dakota SIB manages six pension plans: the North Dakota Public Employees Retirement System, Teachers’ Fund for Retirement, City of Bismarck Employee Pension Fund, City of Bismarck Police Pension Fund, City of Grand Forks Employee Pension Fund, and the City of Grand Forks Parks District Pension Fund.
However, due to unique liquidity needs in the Grand Forks plans, NEPC recommended further discussion to explore strategies that would reduce exposure to illiquid asset classes, according to the meeting materials.
