Juneau – The Board of Trustees held its quarterly meeting in Juneau and via webinar on February 15, 2023, to review the Alaska Permanent Fund’s second-quarter investment performance, discuss the upcoming annual asset allocation, consider in-state investments, and assess risk management metrics.
Chair Ethan Schutt provides that “the Alaska Permanent Fund’s ongoing success relies on the Board’s and staff’s abilities to provide a long-term risk-adjusted return to benefit generations of Alaskans. This maximum return threshold is best achieved through market-driven decisions, benchmarked performance, and an effective asset allocation based on targeted returns.”
During the meeting, a thoughtful discussion was led by guest speakers, Alaska Senator Stedman and Alaska Representative Edgmon, on the importance of the Corporation’s independence and appropriate oversight. The supportive dialogue also focused on the importance of ongoing outreach and education about the intergenerational benefit of the Fund and its ability to generate annual state revenue. It was acknowledged that given the two account structure, both inflation-proofing to maintain the purchasing power of the Principal and the durability of the Earnings Reserve Account warrant ongoing attention.
Values and Returns
The Alaska Permanent Fund ended the quarter on December 31, 2022, with $75.8 billion in assets, having increased by 3.3% over the period. The Total Fund portfolio returned 4.53% for the quarter, outperforming the Performance benchmark and Target Return Objective (CPI+5%) but falling short of the Passive Index benchmark. During the quarter, $496 million in mineral deposits was transferred into the Principal of the Permanent Fund; the transfer included $200 million in FY18 & FY19 unfunded statutory royalty deposits.
APFC’s Chief Investment Officer indicated that he remains focused on properly executing rebalances in the Fund’s asset allocation without attempting to time movements in the market. The Board considered proposed asset allocation adjustments based on recommendations from the CIO and insights from Callan, APFC’s Investment Consultant. The proposed changes complement the current asset allocation strategy and 5-year plan outlined in the APFC Investment Policy. The Board will formally adopt any changes at their Quarterly Meeting in May.
Risk Management Review
An interesting presentation was shared with the Board on the leading measures of risk for the Fund and highlighted the benefits of holding gold as an asset allocation. From a risk management perspective, it was noted that financial conditions appear to be at an inflection point with directional changes in key economic factors, including inflation, interest rates, globalization, policy, and others, warranting a review of assumptions and asset allocations. Over the last decade, significant expansions to equity allocations (public and private) have been beneficial though they potentially added vulnerability in the current environment. Over the medium term (5 years), gold appears to be an attractive asset class that offers diversification and other risk-mitigating qualities. As such, an allocation of between 3% – 5% warrants potential consideration for the Fund’s FY24-FY25 asset allocation.
Capital Market Projections
Callan discussed their performance and capital market projections noting that a modest increase in inflation expectations remains consistent with consensus forecasts. In their presentation, Callan stated that APFC’s policy target remains well diversified and that nominal and real returns are expected to increase for APFC’s Total Fund Portfolio relative to last year.
Status of In-State Private Equity Program
The Board heard updates on the status of the Alaska In-State Private Equity Program established by Board Resolution 18-03 in 2018. The In-State Program’s external managers, Barings and McKinley Capital, have only recently completed the deployment of committed capital. The Board signaled their intention to revisit this topic during their next meeting.
The next regular meeting of the Board of Trustees will be on April 12, 2023, in Anchorage and via WebEx. Meeting information can be found at https://apfc.org/the-board-of-trustees/board-of-trustees-meetings/.
Archived video recordings of all Board of Trustees meetings can be found on our website at https://apfc.org/bot-video-archive/.