South Dakota’s investment regulators are funneling money to companies hoping to make money from artificial intelligence, but the explosion in public interest hasn’t changed the state’s money management strategy.
South Dakota Investment Council leaders provided insight on the AI boom at the request of an advisory board meeting Thursday in Sioux Falls.
Matt Clark, the state’s chief investment officer, likened today’s cash-generating AI businesses to the companies caught up in the dot-com bust of 2000. The tech stock crash that year left behind a large number of companies trying to find a foothold in the market. The then-nascent world of online commerce was in the dustbin of history.
Clark said there is little doubt that investing in AI will pay off for some companies, just as it did with the Internet in 2000. The problem, Clark said, is that they are constantly asked and reassessed by investment councils during booms in either sector.
“Many of the companies that existed in 1999 were successful, but more than half of them have disappeared or gone bankrupt,” Clark told the council’s advisory committee this week. “All 10 companies can’t capture his 30% market share. There will be some disappointment.”
About the council
The council manages assets such as the South Dakota Retirement System, the Educational Enhancement Trust, and the Schools and Public Lands Trust.
Returns from investments and interest on the fund are used for a variety of purposes, including increasing the state’s general fund and disbursing scholarships. Unlike most states, South Dakota’s retirement system is fully funded for retirement system participants, which include public employees ranging from teachers to correctional officers, state troopers, and Department of Transportation employees.
On Thursday, City Council staff informed the board that $13 million was transferred to schools from the Schools and Public Land Trust in February.
South Dakota Retirement System’s fourth-quarter profit margin was 5.8%, below its benchmark. Staff told the board that the poor quarterly performance was related to a more conservative investment mix than the benchmark fund, which is more exposed to the stock market.
In the long run, state investment has increased significantly.
Now in its 50th year, the retirement fund has a value of $14.5 billion and covers more than 33,000 beneficiaries. At the beginning, there were 2,900 recipients and $50 million in the fund.
According to the council’s 2023 annual report, “its lifetime returns exceed those of any other state retirement system nationwide.”
We see a similar long-term growth trajectory across assets under management. However, the Fund may incur losses or underperform on a daily, weekly, or monthly basis.
Investment management in the AI race
Following a summary of the state’s stock portfolio performance in February and March, board members asked which sectors in the stock market were most favorable. The council’s Jan Sieg told the board that the stock portfolio briefly fell into negative territory in February before returning to neutral last month. global rebound In receiving orders for durable consumer goods.
Sieg said market volatility had been an issue for the first few months of 2024, and the state had moved into a “defensive position” in response. Zeke said the healthcare and pharmaceutical sectors, as well as consumer staples, had been “hit hard.”
This comment prompted questions from the board about current market values. Zeeck framed her response in part around her interest in AI. Medicines and other daily necessities, she says, are “not as exciting as the topics of technology and AI.”
Sieg said there are some major differences between the bubble period of 1999-2000 and now. The “Magnificent Seven” of the technology world – Microsoft, Alphabet (Google), Meta (Facebook), Apple, Tesla, Amazon and Nvidia – are “bringing in a lot of cash flow, and it’s real.”
But that doesn’t mean these companies’ AI investments will pay off in the long run, Sieg said. NVIDIA stock has been on a roller coaster this year as the chipmaker manages AI-related demand for its products.
“We don’t know how much of it will be profitable,” she says. “No one knows about that yet.”
The state is investing in high-tech companies, and Zeke said he is “constantly evaluating” the state’s position in these areas. However, the technology sector and AI are not significant components of the state’s overall assets under management.
“I’m not making big bets on tech stocks,” Clark told South Dakota Searchlight after the meeting.
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