Homer Alaska - Business

Story last updated at 8:33 PM on Wednesday, June 8, 2011

Permanent fund trustees approve new asset diversification strategies during May meeting

Morris News Service - Alaska

The Alaska Permanent Fund's Board of Trustees made allocations to three alternative investment programs, authorized two investment manager searches and approved expenditures for the fiscal year 2011 and 2012 budgets at its regular meeting last month in Anchorage.

The bulk of the fund, which now has a market value of about $40 billion, is invested in domestic and international equities, mostly stocks, corporate and government bonds, real estate and several types of alternative investment instruments.

"The board believes that alternative investments are important to complement traditional asset classes, adding diversification and improving the fund's risk adjusted rate of return," said Bill Moran, APFC board chair. "For example, timber investments, an asset class that other state funds have been in for some time, show promise to add stability and long-term returns for the permanent fund."

The board reviewed existing and proposed programs and approved the following items:

• Engaging Callan Associates, the board's general consultant, to conduct searches for managers of timber-related assets and a diversified inflation fund manager. This would be the first investment for the fund in these investment types. The permanent fund has become interested in investments in natural resource assets like timber as an alternative to traditional investments.

• A $600 million total allocation to new private equity investments, to be made through existing managers Pathway Capital Management and HarbourVest. This new allocation will be added to the projected commitment of $3.1 billion that the staff at the fund expects to have in place by June 30.

• A $400 million allocation to an allocation to infrastructure investments for FY 2012, and an authorization for staff to conduct a search for new infrastructure managers if necessary. Infrastructure assets, like commodities, is a form of alternative investment for the fund. Infrastructure assets are things like ports, airports and highways.

• A $750 million additional allocation to private credit for FY 2012 that will be allocated to different corporate credit opportunities.

In a separate interview, the fund's executive director, Mike Burns, said there is more interest in new classes of investments like timber and agriculture. The growth of Asian economies, particularly China, is driving increased consumption of food, fuel and construction materials, he said.

The board also expanded and clarified the section of the permanent fund's existing investment policy that pertains to credit opportunity funds, such as distressed debt issued by companies or institutions facing financial challenges.

Following the conclusion of the legislative session, the board authorized staff to implement APFC's Fiscal Year 2012 budget as approved by the governor and the Legislature. In addition, the board authorized spending up to an additional $18.5 million for manager and custody fees in Fiscal Year 2011, following legislative approval.

The board's next regular meeting is its annual meeting, scheduled for Sept. 29 and 30 in Juneau.

The Alaska Permanent Fund is now one of the world's largest investment funds. It was established in 1976 when Alaska voters approved a constitutional amendment allowing the fund to be a dedicated fund, which is otherwise outlawed by the state constitution. Twenty-five percent of oil royalties from state lands and bonuses in lease sales were paid into the fund, and over the years the state Legislature appropriated several billion dollars in surplus revenues to the fund.

The bulk of the fund's growth over the years has been from its earnings, however, which are mostly retained except for a portion of earnings paid out in the annual permanent fund dividend paid to citizens.