The $24B North Dakota Retirement and Investment Office (RIO) is overhauling its portfolio management structure, expanding its internal investment team and adding new in-house trading capabilities.
RIO’s new strategy blends internal and external management while actively rebalancing portfolios to manage liquidity and ensure cash is invested quickly and cost effectively, said Scott M. Anderson, the state agency’s chief investment officer, in an exclusive interview with Markets Group.
Last year, RIO added two portfolio managers — Chirag Gandhi for fixed income and George Moss for equities — and built the infrastructure to support in-house trading. Northern Trust, already serving as custodian, now handles trading and settlement through its integrated trading solutions platform, freeing up the RIO team’s time to focus on strategic investment decisions and portfolio growth.
“By leveraging the firm’s dedicated trading desk, RIO gains access to scale, best execution in the marketplace, and streamlined settlement and confirmation matching,” said Anderson. “This integration reduces the burden on back-office staff and lowers costs while improving efficiency.”
Through the platform, RIO executes internal trades such as U.S. Treasuries, agency bonds, cash instruments, and enhanced index strategies, while Northern Trust continues to manage settlement and execution for externally managed funds. This ensures efficiency and integration across the entire portfolio, including mandates managed by trusted external partners.
The investment office is rolling out the plan in three stages. The first focused on indexing, overlays and rebalancing to improve efficiency. Next, RIO will move into enhanced indexes, adding active return where portfolios would otherwise be passive. Eventually, the office will layer in selective active strategies that complement its external managers.
“The approach is deliberately hybrid — internal strategies are designed to sit alongside external mandates, preserving access to specialized expertise where scale or resources make outsourcing the better option,” said Anderson.
“We’re always going to have external managers for certain mandates where we don’t have the scale or expertise,” he added. “Private markets and some highly specialized public strategies will remain outsourced. Our internalization efforts are about augmenting — not displacing — the capabilities of external managers.”
The goal is to better coordinate internal and external strategies while staying faithful to the fund’s asset allocation. “Internal strategies serve as a platform to capture additional active return, but always in a way that maintains alignment with asset allocation targets. This allows us to optimize portfolio construction after costs, make adjustments more precisely, increase the frequency of rebalancing, and better time trades to maintain exposures and achieve optimal risk-adjusted returns.”
Rebalancing with precision
Anderson said the business case has already proven successful, noting some funds typically rebalance infrequently, at the wrong times and imprecisely, resulting in increased risk, transaction costs, and lower returns from uninvested cash. By contrast, RIO’s internal liquidity funds allow rebalancing to happen more often, with better timing, with greater accuracy and at much lower cost.
Managing cash exposures more effectively is another advantage. Cash often builds up between rebalancing cycles, dragging on returns. RIO now deploys excess cash into synthetic exposures that mirror its asset allocation, reducing tracking error and lowering the risk of performance shortfalls.
Bringing these capabilities in house also improves exposure management. More precise oversight reduces unintended risk when portfolios drift from benchmarks, noted Anderson.
These enhancements give RIO greater control over portfolio exposures, allowing it to balance risk and return more effectively, while maintaining close collaboration with external managers for specialized mandates. The result is a stronger, more flexible investment platform designed to deliver better outcomes for client funds.
The move also comes with reporting capabilities that give RIO clear metrics on the quality of execution. “We use third-party transaction cost analysis to independently evaluate trade quality, typically on a quarterly cadence,” said Grant Johnsey, Northern Trust’s head of market solutions, banking and markets, Americas. “Clients like North Dakota see performance benchmarked against multiple measures — whether arrival price, [volume-weighted average price], or end-of-day close — along with detailed reporting on spreads, volatility, and market impact. That way, they can see not just that we executed, but how efficiently, and whether opportunities exist to further refine their trading approach.”
📌 Reserve your seat! North Dakota Retirement Investment Office’s CIO Scott M. Anderson will share insights on asset allocation in 2025 and beyond during Markets Group’s upcoming Institutional Fall Retreat, which will be held on Amelia Island, Florida, from Nov. 17-19.
