The $8.7 billion Legacy Fund is one of North Dakota’s greatest assets to ensure a bright future with better opportunities for residents.

We need to be smart with that money. We have to target the fund’s investments to get the greatest return and to ensure that it will be financially healthy and able to serve future generations.

We’re about to launch a promising new era of investing some of that fund directly in fledgling or expanding businesses in North Dakota, instead of sending it all to Wall Street firms or investing it overseas.

But the recent process of enabling the Legacy Fund to be tapped to make direct investments inside North Dakota has exposed some significant problems in the way the fund is being directed.

The 11-member State Investment Board resisted allowing in-state investments, rejecting a proposal to do so by Jon Godfread, the state insurance commissioner and a member of the board.

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The resistance reveals a fundamental problem of the board: It’s designed to manage pensions and insurance funds, both of which require very different investment strategies than the new program.

Pensions are promises made to public employees’ retirement programs, and the state has a fiduciary duty to ensure that those promises are kept. Similarly, insurance funds must be able to provide a secure income stream to serve diverse needs, including providing benefits for injured workers.

Overseeing those investments requires a cautious approach and adherence to the “prudent investor” rule.

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But the Legacy Fund is an entirely different animal. It’s mission is to make strategic investments to create lasting benefits from North Dakota’s finite petroleum wealth.

The portion of the fund that will be available to invest inside the state is exempted from the prudent investor rule in order to allow greater flexibility to invest in opportunities that entail more risk, including private equity and venture capital — important financial seed beds that have been sorely lacking in North Dakota.

The board to oversee the Legacy Fund should be well versed in business and finance. To guard against conflicts of interest, the board will need a well-drafted ethics policy. Perhaps some conflicts could be avoided by selecting retired business executives and investment advisers.

Meanwhile, the State Investment Board must take a more active role. It has been on autopilot, uncritically accepting the advice of investment consultants including Callan, which recommends money managers — some of which pay Callan through its educational and research arm, Callan Institute.

Do those paid relationships, which Callan discloses publicly and insists it has erected “firewalls” in order to prevent conflicts of interest, nonetheless cloud Callan’s objectivity and color its advice? The board needs to do more probing and less rubber-stamping.

Better yet, it can find investment consultants who don’t have those paid relationships so questions about possible conflicts and the potential for biased advice don’t arise.

The State Investment Board also needs to be open to hiring North Dakota investment managers. Banks with trust departments are investing billions of dollars for businesses and individual investors, but have been shut out of managing even a sliver of the Legacy Fund.

That needs to stop. After all, we’re talking about a fund that should develop the state’s economy and business structure.

The approaching departure of Dave Hunter, the state’s chief investment officer, presents an opportunity for a re-set in the way the State Investment Board and Retirement and Investment Office operate.

We should take advantage of that opportunity to rethink the way we’re managing North Dakota’s $19.4 billion investment portfolio.

Creating a separate board for the Legacy Fund will be a good place to start.