Kenai-Soldotna – The APFC Board of Trustees met in Kenai-Soldotna and via webinar on May 17-18, 2023 to adopt an update to APFC’s Asset Allocation and Investment Policy. Additionally, the Board discussed relevant risk parameters, the Private Equity asset class and private market pacing, the FY23 and FY24 operating budgets, an analysis of opening an APFC office in Anchorage, and consideration of Governance Committee recommendations.
The Permanent Fund finished the quarter ending March 31 with $76.5 billion and a year-to-date return of 3.12%. Statutory net income through the same period is $1.6 billion, which is significantly below Callan’s low forecast and nearly $3 billion below the level at the same time in the prior year.
Investment Policy
As part of the Board’s annual review of the Investment Policy, modifications to the Fund’s target asset allocation were approved. One notable change will establish a new Tactical Opportunities asset class that could be used to invest in any already authorized assets across public or private markets. This asset class was approved to target up to 2% of the Total Fund, with expected returns for this portfolio to exceed those of a passive strategy benchmarked by the S&P 500.
Other approved changes to the Board’s Investment Policy included updates to Proxy Voting for Public Equities investments, an increased ratings floor for short-term Fixed Income investments, adjusting the Private Equity portfolio’s strategic target ranges, modifying Real Estate’s property type weights, and removing target levels and timeframes for In-State Investment. Further changes included winding down the Risk Parity Portfolio, which had represented less than 1% of the Total Fund value; the remaining assets will be liquidated in the coming months.
Pacing
Because of the longer nature and investment characteristics of the Real Estate, Private Equity, and Private Income asset classes, long-term planning is necessary to ensure prudent management of these portfolios.
As APFC continues to navigate towards long-term allocation targets, as part of their annual pacing review, the Board approved an FY24 plan for pacing APFC’s Real Estate, Private Equity, and Private Income investment activities. The Real Estate team will target deployment of $650 million with the ability to go 20% higher. Private Equity will target a deployment of $1 billion, and Private Income will target a deployment of $1 billion over the next fiscal year with a 50% flexibility within the established band.
Private Equity
APFC’s Director of Private Equity and Private Equity Associate shared market trends for the Private Equity landscape and provided an update on the portfolio, as well as an overview of investment strategy and approaches for the asset class.
Two external Private Equity investment partners, KPS Capital Partners and GTCR, shared strategic approaches for investment in private markets and highlighted their work on behalf of the Corporation.
APFC Investment Management Operations
At the Quarterly Meeting, the Board authorized the Chief Executive Officer to expend the APFC budget authorization as appropriated by the Legislature and enacted into law, beginning July 1, 2023. At this time, the Legislature is now in a special session to complete work on the passage of the FY24 budget.
As part of the Board of Trustees FY20-25 Strategic Plan, an Anchorage office was recognized for its ability to address recruitment and retention challenges. APFC’s Chief Operations Officer submitted a memo to the Board regarding the proposition of establishing a second office for the Corporation. The Board directed staff to expediently work to open an Anchorage office and develop a timeline, identify space, and prepare a budget for presentation at an upcoming Board meeting.
Governance
Following recent work by staff and Funston Advisory Services, an external consultant, and discussed by the Board’s Governance Committee last week, several recommendations were brought forth for practical improvements to APFC’s governance policies, ensuring that existing policies remain consistent with best governance practices for an endowment fund of similar size and purpose to the Alaska Permanent Fund.
Ultimately, the full Board agreed to take time to further assess the recommendations, which will be taken up at a later meeting.
Audit
The Audit Committee of the Board also met Wednesday morning to plan the annual audit and risk assessment with KPMG, the Corporation’s Auditor. A discussion was held regarding internal audits, FY23 year-to-date financial review, and the logistics of completing a Committee self-assessment.
The next regular meeting of the Board of Trustees will be July 12, 2023, in Anchorage and via WebEx. Board of Trustees 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 are on our website at https://apfc.org/bot-video-archive/.