An Alaskan's Guide to the Strategic Direction of APFC & the Fund

A helpful key to reaching $100 billion in AUM is the use of leverage. Allowing the Permanent Fund to utilize leverage at the Fund level, that is, to borrow money when making investments, has the potential to increase returns. Leverage is also a useful tool for meeting liquidity or cash demands. While incorporating leverage can offer a better return on investment, it also increases risk, so any potential use would be within carefully defined parameters. Our objective in using leverage would be to generate returns that surpass the cost of borrowing over time.

While leverage is currently used in some of our Real Estate, Private Equity, Private Income, and Absolute Return investments, using it at the Fund level requires a change in state law. APFC is initiating discussions with the Legislature and the Administration regarding the needed statutory changes and the long-term benefits of using Fund-level leverage.

In all our investments, APFC aims to maximize returns and outperform benchmarks, or "alpha." To generate alpha we must continuously improve our capabilities, which necessitates procuring resources to enhance our organizational structure and streamline processes.

A core component of APFC’s alpha generation strategy is to grow our co-investing and direct investing team. In these specific types of investments, APFC invests directly in a company rather indirectly through a private fund. APFC has been making direct and co-investments in the private markets (Private Equity, Private Infrastructure, Real Estate) for more than 10 years, which has helped the Fund achieve premium returns.

The strategic plan for the Private Equity portfolio, updated this past summer, includes hiring additional staff to focus on direct and co-investments. While some work can be performed at our current staffing levels, there are opportunities for APFC to enhance its co-investment and direct investment efforts with additional resources and support.

Notably, APFC does not pay fees when making these types of investments, as it does when investing via private funds. Continuing to avoid fees while selecting attractive investment opportunities may result in higher returns to the Fund over time. As such, for the FY25 operating budget, APFC is seeking one additional full-time employee who will be focused on direct investing and co-investing.

Asset class-level plans are essential for aligning objectives and investments with APFC’s overarching goals. Utilizing such plans enables APFC to adapt to market changes and supports diversification strategies while promoting stakeholder confidence by providing clarity and transparency. In executing optimal investment management, APFC’s portfolio managers will evaluate, update, and formalize their strategies and investments to ensure a maximum risk-adjusted return to benefit generations of Alaskans.

In the December 2023 quarterly meeting of the APFC Board of Trustees, APFC’s Chief Investment Officer, Marcus Frampton, presented his investment philosophy for managing the Fund, and each asset class head provided an overview of the strategy under which they are managing their respective asset classes. As a public fund with a range of stakeholders, it is critical that APFC staff are always transparent about the strategies they are pursuing with Fund capital. This includes making stakeholders aware that pursuing certain strategies might necessitate requests for additional resources in future budget years.

Interested stakeholders should review the asset class and total fund investment strategic plans presented in the December 2023 quarterly meeting. Board packets containing this information are available in APFC’s Resource Archive. APFC staff are available to respond to questions or to discuss any feedback.