The Permanent Fund has two parts: the Principal and the Earnings Reserve Account (ERA). Both are invested together using the same asset allocation, but they are very different in how they can be used by law: the Principal is permanent savings, the ERA is available to spend.
The Principal is the permanent part of the Alaska Permanent Fund. The Principal is to be used only for income-producing investments per the constitutional amendment establishing the Permanent Fund. The Principal grows through royalty contributions, special appropriations, and inflation proofing.
Principal holds unrealized gains and losses on invested assets from the time they are purchased until they are sold.
Contributions to Principal
Royalty Deposits – AS 37.13.010 (a) (1) and (a) (2)
The State Constitution directs that at least 25% of Alaska’s mineral royalties be deposited into the Principal. Alaska State Statutes mandate deposits of 50% for leases after 1979.
Special Legislative Appropriations – AS 37.13.010 (a) (3)
Legislative Deposits either from the Earnings Reserve Account or another source, such as the General Fund.
Inflation Proofing – AS 37.13.145 (c)
Since the Principal does not retain any of the realized gains on investments, it must receive an annual appropriation to offset the effects of inflation and preserve its purchasing power to benefit all generations. The inflation proofing calculation is based on deposits into the Principal and the inflation rate calculated per statute. Transfers from the Earnings Reserve Account to the Principal are subject to legislative appropriation.
Earnings Reserve Account (ERA)
Once an investment is sold, it is recognized as a realized gain/loss, and that net realized income is then deposited into the Earnings Reserve Account. The ERA is invested together with the Principal under the same asset allocation and holds a portion of the unrealized gains/losses for its share of its investments.
The Earnings Reserve Account (ERA) is established in state law, AS 37.13.145(a), as a separate account to hold the net realized income from the Permanent Fund's investment portfolio. The ERA is available for the Legislature to spend through its power of appropriation. Decisions about uses of the Earnings Reserve Account are made each year by the people’s elected representatives – the Alaska State Legislature and the Governor. To date, the primary use of the Earnings Reserve Account has been to pay an annual dividend to the citizens of Alaska.
The ERA grows through the receipt of statutory net income.
Statutory net income is the direct result of investment activity (decisions to buy and sell) and excludes unrealized gains and losses. There are two components to this income that flow to the ERA:
- Operating Income: Cash inflows from stock dividends, bond interest, and real estate rental fees available for deposit.
- Realized Capital Gains/Losses: All the net income (i.e., realized gains minus realized losses) generated by investment sales.
Statutory Net Income is unpredictable and can vary significantly from one fiscal year to the next. APFC manages the portfolio to provide a maximum risk-adjusted return, not towards gain realization as a key metric.
How are the earnings used?
Since inception through FY23, the investment of the Fund has generated more than $83.6 billion in net realized earnings deposited into the ERA, which have been used:
- to support the investment management and operations of the Fund;
- to partially fund state agencies involved with collecting royalties and distributing dividends;
- to pay dividends to eligible Alaskans;
- and to support government services and programs.
Percent of Market Value (POMV)
Per Alaska Statute 37.13.140(b), enacted in 2018, withdrawals from the ERA are based on a percentage of the average market value ("POMV") of the Fund, a method designed to create a withdrawal structure that ensures no more than a sustainable amount is drawn on an annual basis.
The Percent of Market Value (POMV) draw is based on a percentage of the average market value of the Fund for the first five of the preceding six fiscal years; this average creates a smoothing effect across years. The POMV draw provides a certainty of liability for managing the portfolio and a stable, predictable payout from year to year. The draw is subject to appropriation and is set in statute at 5.0%.
|FY 25 Draw
|5 yr AVG
The POMV draw in FY24 was $3.5 billion, $3.4 billion in FY23, $3.1 billion in FY22, $3.1 billion in FY21, $2.9 billion in FY20, and $2.7 billion in FY19. The POMV draw for the Fund is limited by the statutory allowable percentage and the amount available for appropriation in the ERA – the 'checking account' of the Fund.
2002 Trustee Paper 7
Making the Case for Complete and Protected Inflation-Proofing
2008 Trustee Paper 8
Wealth Management Sovereign and Permanent Funds Around the World
2020 Trustee Paper 9
he Role of Sovereign Wealth Funds in Savings, Stabilization, and Generating Income
2024 Trustee Paper 10
A Rules-Based Permanent-Endowment Model for Alaska