FREQUENTLY ASKED QUESTIONS
Find out the answers to some frequently asked questions about the Alaska Permanent Fund Corporation.
- Why did Alaskans create the Fund?
- What is the purpose of the Permanent Fund?
- How does the Fund work?
- How does the Fund grow?
- How is the Fund invested?
- How big is the Permanent Fund?
- What happens to Fund income?
- How is the Fund doing?
- What is the difference between the Alaska Permanent Fund Corporation and the Permanent Fund Dividend Division?
During construction of the Trans-Alaska Pipeline in the 1970s, oil companies flooded state coffers with money paid for leases to explore and secure drilling rights. The Legislature spent all $900 million of that initial lease money within a few years. Alaskans realized that they were about to receive a great deal more money from oil when the pipeline was complete. They wished to better safeguard the robust income forthcoming from the pipeline, but the state constitution did not allow for dedicated funds. So Alaskans voted in 1976 to amend the constitution to put at least 25 percent of the oil money into a dedicated fund: the Permanent Fund. This would save money for future generations, which would no longer have oil as a source of income. In 1976, Governor Hammond proposed a constitutional amendment to create the Fund. The 9th Alaska Legislature modified the governor’s legislation and placed it as a ballot proposition in the 1976 General Election. It passed by a margin of 75,588 to 38,518.
The state law establishing the Permanent Fund (AS 37.13) provides that it be managed and invested in a manner consistent with the following legislative findings:
- The Fund should provide a means of conserving revenue from mineral resources to benefit all generations of Alaskans.
- The Fund’s goal should be to maintain safety of principal while maximizing total return.
- The Fund should be used as a savings device managed to allow the maximum use of disposable income from the fund for the purposes designated by law.
The Fund is divided into two parts: Principal (nonspendable) and Earnings Reserve (spendable), both of which are invested using the same asset allocation. The Alaska Constitution articulates that the Principal shall only be used for income-producing investments. The Earnings Reserve account, established in Alaska Statutes, is available for appropriation.
The Fund has four sources of potential growth:
- Royalties—the State Constitution directs that at least 25 percent of Alaska’s mineral royalties (primarily oil royalties) be deposited into the Principal.
- Un-Realized Capital Gains/Losses—gain (or loss) on assets from the time they are purchased until either the most current date.
- Inflation Proofing—transfers from the earnings reserve account to the principal based on statutory calculation and legislative appropriation.
- Special Legislative Appropriations
The Board’s goal is to achieve an average annual real rate of return of five percent (5%) at risk levels broadly consistent with large public and private funds. A real rate of return is the annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other external effects. In order to meet this goal, the Board sets an asset allocation that includes holdings across a broad range of investments. Information regarding the Fund’s current investments can be found in the Investments section of the site.
The current value of the Permanent Fund can be found on this site’s home page, where it is updated daily. The value can fluctuate up or down with market movements, and trends upward over time.
In 1998, the definition of “income” for accounting purposes was modified to take “unrealized gains and losses ” into consideration; known a s “statutory net income,” it is provided for in AS 37.13.140. Statutory net income excludes unrealized gains and losses; only realized gains are transferred to the ERA. Unrealized gains earned by Principal are accounted for as part of Principal until they are realized, and unrealized gains earned by Earnings Reserve Account (ERA) are accounted for as part of ERA.
The ERA is available for appropriation; decisions about uses of ERA are made each year by the people’s elected representatives – the Alaska State Legislature and the governor. To date, the ERA has been used to:
- Pay dividends to qualified applicants.
- Inflation proof the Principal.
- Make special appropriations to the Principal.
- For operational costs, investment manager fees, and related state expenses.
The Fund is doing well, and over the years has paid out more in dividends than it has taken in from mineral deposits while maintaining a healthy balance. Current, detailed information on the Fund’s performance by asset class and overall can be found in the Monthly Performance Reports and Annual Reports that are posted on the website.
- The Alaska Permanent Fund Corporation was created to manage the investments of the Permanent Fund and is a quasi-independent state entity. APFC has one mission: to manage and invest the assets of the Permanent Fund and other funds designated by law.
- The Permanent Fund Dividend Division is with the Department of Revenue and is responsible for implementing the Permanent Fund Dividend Program. Its mission is to administer the permanent fund dividend program assuring that all eligible Alaskans receive timely dividends; fraud is prosecuted; and all internal and external stakeholders are treated with respect. For more information on the Permanent Fund Dividend Division, please visit pfd.alaska.gov.