Understanding Investment & Finance Terms

Terms and Acronyms

This glossary provides clear definitions for commonly used investment and financial terms, as well as acronyms you may encounter when learning about or working with APFC. Whether you’re a student, investor, or stakeholder, these explanations help you understand key concepts, industry language, and the terminology behind our investment practices.

FREQUENTLY ASKED QUESTIONS

Absolute Return Portfolio

APFC’s Absolute Return Portfolio is one of APFC's asset classes designed to perform independently of market direction. Absolute Return strategies are an array of investments designed to produce returns uncorrelated with market performance and independent of traditional benchmark indices.

Alternative Asset

Most investment plans include investments that are not traditional asset classes. APFC considers alternative investments to be assets other than common stocks and bonds.

Alaska Permanent Fund ("the Fund")

Created in 1976 to save a portion of Alaska’s oil revenues for the needs of future generations of Alaskans. APFC manages and invests the assets of the Fund.

As one of the first sovereign wealth funds and the largest state-level fund of its kind in the U.S., the Fund has gained worldwide recognition as a model for converting non-renewable natural resources into a renewable financial resource. The Fund’s total assets are approximately as of March 31, 2024, and are invested across a broad range of assets, including equities, fixed income, alternatives, and real estate. The Board of Trustees serves as fiduciaries of the Fund and oversees APFC.

Alaska Permanent Fund Corporation (“APFC”)

The Alaska Permanent Fund Corporation, commonly referred to as “APFC,” was created by the Alaska Legislature in 1980 as a quasi-independent state entity tasked with the important mission of prudently investing and managing the assets of the Alaska Permanent Fund (the Fund). The Board of Trustees serves as fiduciaries of the Fund and oversees APFC.

Alpha

Alpha is a term commonly used in investing to describe an investment strategy's ability to beat the market, or its "edge." Active portfolio managers like APFC seek to generate alpha in diversified portfolios.

Asset

Anything owned that has economic value, such as stocks, bonds, or real estate, can be called an asset. An asset can over time generate cash flow, reduce expenses, or improve sales.

Asset Class

An asset class is a grouping of investments with similar characteristics that are typically subject to the same laws and regulations. The Fund is invested across eight asset classes:

(1) Public Equities, (2) Fixed-Income, (3) Private Equity, (4) Real Estate, (5) Private Income: Infrastructure, Private Credit & Income Opportunities (6) Absolute Return, (7) Tactical Opportunities, and (8) Cash.

Assets Under Management (AUM)

Assets under management, often referred to as “AUM,” is the total market value of a fund’s investments.

Asset Allocation

Asset allocation is an investment strategy that seeks to balance risk and reward by distributing investments among different types of assets. APFC’s Asset Allocation is reviewed and approved annually by the Board of Trustees and is intended to deliver risk-adjusted returns over the long term for the benefit of Alaskans.

Basis Point

A basis point is one one-hundredth of one percentage point, expressed in decimal form as 0.01%. Basis points are used to show the change in the value or rate of a financial instrument. For example, if the Federal Reserve’s target interest rate was 2% and it was cut by 50 basis points, the new rate would be 1.5%.

Bear Market/Bearish

A bear market describes a financial market experiencing prolonged declines in investment prices. If someone is described as “bearish,” they expect share prices to decline or to continue declining.

Benchmark

Benchmarks are used as reference point to gauge and evaluate performance. APFC reports regularly on the Fund’s overall performance using three benchmarks:

The “Performance Benchmark” represents a blend of individual asset class benchmarks at their target weights and, therefore, represents the best measurement of the quality of staff’s investment decisions versus broad investable indices.
The “Passive Index Benchmark” is a blend of indices reflective of a traditional portfolio consisting of public equities, fixed income, and real estate investments.
The “Total Fund Return Objective” is the long-term investment goal set by the Board of Trustees. The objective is to achieve an average real rate of return of 5% per year, CPI + 5%.

Beta

Beta is a term commonly used in investing to describe the measure of a security’s volatility of in comparison to the broader market, typically represented by the S&P 500 index.

Bond

A money-raising mechanism in which the bond “issuer” — a corporation, government, or government agency — borrows funds, typically at a predetermined interest rate for a specified period. Bonds are classified as fixed income instruments as they traditionally pay a fixed interest rate.

Bull Market/Bullish

A bull market describes a financial market in which investment prices are rising or expected to continue rising. If someone is described as “bullish” they expect share prices to rise or continue rising.

Cash Portfolio

APFC’s Cash Portfolio is one of APFC's asset classes designed to provide stability for the portfolio along with critical liquidity and risk balance. The Cash Portfolio is primarily managed internally.

Co-investment

A co-investment is a collaborative investment made by multiple parties in a particular venture or asset. Each investor contributes a portion of the required capital to diversify the risk among multiple parties.

Committed Funds

Dedicated capital set aside for a specific purpose or purposes such as known obligations like inflation proofing and the upcoming year's Percent of Market Value (POMV) draw.

Consumer Price Index (CPI)

The Consumer Price Index (CPI) is one of the most popular measures of inflation, the rise in prices over time. The Board of Trustees has set the benchmark for Fund performance as the “Return Objective” of CPI + 5%.

CPI + 5%

The total fund return objective is CPI + 5%. The current target is 5%, plus the rate of inflation, as measured by the consumer price index (CPI). The total return objective of inflation plus 5%, equal to 7.79% for FY23. In Fy23, the total Fund’s performance was 5.18% which missed the year’s benchmark.

Direct Investment

Direct investment involves acquiring a controlling interest in a business or asset, with the investor typically taking an active role in management. This differs from an indirect investment, where funds are pooled and managed by a third party.

Diversification

“Don’t put your eggs in one basket” is the principle of investment diversity. Diversification reduces risk by putting assets in several categories of investments with different characteristics.

Earnings Reserve Account (ERA)

APFC’s Earnings Reserve Account or “ERA” is established in state law, AS 37.13.145(a), as a separate account – apart from the Principal – 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. The ERA grows through the receipt of statutory net income (SNI).

Equities

Another name for stocks. Represents shares of ownership in public companies.

Equity Real Estate

A type of investment in real property in which the investor has an ownership position.

Exchange-Traded Funds (ETFs)

ETFs are investment funds traded on stock exchanges, designed to track the performance of a specific index, commodity, or asset class.

Fiduciary

A legal obligation of one party to act in the best interest of another. When a party knowingly accepts the fiduciary duty on behalf of another party, they are required to act in the best interest of the principal, the party whose assets they are managing.

Fixed Income

Interest-bearing investments such as government and corporate bonds that mature at specific times, repaying principal plus interest. See “Bonds.”

Fixed Income Portfolio

The Fixed Income portfolio is one of APFC's asset classes designed to act as an anchor to the Fund. During volatile market cycles, these assets can provide stability and a source of liquidity to take advantage of market dislocations.

General Fund

The State of Alaska’s “checking account,” which contains money the state receives and distributes by appropriation. APFC contributes annually to the General Fund, specifically to the Unrestricted General Fund (UGF), which is non-federal money with no statutory restrictions on its use; the legislature has the discretion to spend this money however it chooses.

General Partner (GP)

A general partner, commonly referred to as a GP, is a part-owner of a business and is involved with its operations and shares in its profits. In the context of private equity, the partners in a private equity fund are general partners.

Income

Income is the money received from an investment, and can be derived from interest, dividends, real estate cash flow, capital gains and losses, or appreciation and depreciation of investment market values.

Inflation

An increase in the price of goods and services as happens when spending increases relative to the supply of goods on the market. The Consumer Price Index (CPI) is one of the most popular measures of inflation, the rise in prices over time.

Inflation Proofing

Inflation proofing describes when sufficient monies are appropriated to the Fund’s principal from the Fund’s earnings to fully offset the effects of inflation on the Principal balance. Inflation proofing is one way the Principal grows in value.

Per Alaska statute, inflation proofing mandates that 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. AS 37.13.145 (c).

Several Trustees’ Papers addresses the topic, specifically, Trustees’ Paper Volume 7, “Making the Case for Complete and Protected Inflation-Proofing.”

Infrastructure

APFC refers to infrastructure as properties or facilities that have been traditionally operated by governments as public assets, such as toll roads or airports.

Investment

The purchase of some form of security with the expectation of achieving some relative gain.

Lease Bonus

A one-time amount paid by a private company competing for the right to lease a section of public land for development.

Leverage

Financial leverage is the concept of using borrowed capital as a funding source.

Limited Partner (LP)

A limited partner, often referred to as an LP, invests money in exchange for shares in a partnership but has restricted voting power on company business and no day-to-day involvement in the business. Investors in private equity funds are limited partners

Permanent-Endowment Style Fund

A permanent-endowment style fund is a type of investment fund structured to provide long-term financial support to a specific organization or entity, typically by preserving the principal investment and utilizing a portion of the investment returns for ongoing funding.

Percent of Market Value (POMV)

The POMV draw was enacted in 2018 per Alaska Statute 37.13.140 (b) and governs the flow of funds to and from the Permanent Fund. It's based on a percentage of the average market value of the Fund for the first five of the preceding six fiscal years, creating a smoothing effect across years.

Learn more about the POMV on the Fund Structure page.

Portfolio

A collection of stocks, bonds, or other investments held by an individual or institutional investor.

Private Credit

Lending by non-bank financial institutions. Private credit investments are included in the Private Income asset class.

Private Equity

Private Equity is an investment in a privately held, non-publicly traded company. Within APFC's asset classes, Private Equity is structured to engage in various private market investment opportunities by committing to funds managed by APFC’s investment partners over the long term. Additionally, it may strategically make direct investments into operating companies to complement the efforts of APFC’s partners.

Private Income

The Private Income portfolio is one of APFC's asset classes designed to invest in infrastructure, private credit, and other income-producing assets.

Pro Rata Share

Pro rata is the term for proportionate allocation, a method of assigning a percentage amount to its share of the whole.

Prudent Investor Rule

The Prudent Investor rule is a standard of judgment and care applied to individuals who make investments. Under this rule, the investor is to use the same judgment and care that an institutional investor of ordinary prudence, discretion, and intelligence would use in managing large investments.

Purchasing Power

The value of money in terms of what it can buy at one time compared to another.

Quasi-State Entity

APFC is a quasi-independent state entity. State law created APFC as an agency separate from the State with a specific mandate to manage the Fund. The purpose of the separation of the Alaska Permanent Fund Corporation from the State, including the creation of an independent board, was to help shield and insulate the investments of the Fund from political influence. Alaska State Law (AS 37.13) lays out the general guidelines for the Fund’s investment goals, however, as fiduciaries of the Fund, the APFC Board of Trustees has the full authority to make investment decisions.

Rate of Return

The profit from an investment expressed as a percentage of the amount invested.

Real Rate of Return

The total investment rate of return, adjusted for the rate of inflation.

Realized Earnings

Income that is earned and received from various cash flows, such as stock dividends, bond interest, real estate rental cash flow, or net profit or loss from the sale of an investment.

Renewable Resource

A resource, such as timber or fish, that may be replenished or restored while being consumed.

Return

In typical use, the amount, value, or benefit gained from an investment outlay.

Risk

The possibility, which can be measured, of losing or not gaining value.

Royalty

Payment to the holder or owner for the right to use property such as a patent, copyrighted material, or natural resources.

Royalty Deposits

The Alaska State Constitution directs that at least 25% of the state’s mineral royalties be deposited into the Fund’s Principal. For leases made after 1979, the state statute mandates deposits of 50%. AS 37.13.010 (a) (1) and (a) (2).

Security

Any investment instrument such as a bond, common stock, deed of trust on property, or any evidence of indebtedness or equity.

Sharpe Ratio

A measure used to evaluate the risk-adjusted return of an investment or portfolio. It quantifies the excess return generated per unit of risk, with higher ratios indicating better risk-adjusted performance.

Single Account Structure

For a Sovereign Wealth Fund (SWF), refers to managing all the fund's assets in one “account” or entity, rather than dividing it into separate pools or accounts.

Sovereign Wealth Fund (SWF)

A government-owned investment pool that uses resource revenue to provide for the future. The Alaska Permanent Fund is a Sovereign Wealth Fund (SWF).

Special Legislative Appropriations

Legislative deposits to the Principal either from the ERA or another source, such as the General Fund, are referred to as Special Legislative Appropriations AS 37.13.010 (a) (3).

Statutory Net Income (SNI)

The Permanent Fund’s net income as defined in law. It includes only net realized earnings and excludes any unrealized gains or losses. SNI is the direct result of investment activity (decisions to buy and sell). SNI is unpredictable and can vary significantly from one fiscal year to another. APFC manages the portfolio to provide a maximum risk-adjusted return, not towards gain realization as a key metric. Learn more SNI here: Fund Structure.

Stock

Another name for equities. Represents a share of ownership in a public company.

Trustee

A person charged with managing assets in the interest of beneficiaries, such as Alaskan residents. The APFC Board of Trustees is comprised of six members.

Trustees' Paper

A Trustees' Paper provides insights, education, and analysis on topics relevant to important public understanding and consideration, particularly for entities like APFC entrusted with significant assets under management (AUM).

APFC’s Board of Trustees issued 10 Trustees' Papers on the Alaska Permanent Fund, with the first dating back to 1980. Trustee Paper #10 includes an overview of the Fund’s structure, insights into durability issues under the current construct, and potential solutions to bring the Fund in line with modern endowment practices.

Two-Account Structure

The Alaska Permanent Fund has two parts: the Principal and the Earnings Reserve Account (ERA), often referred to as a “two-account structure.” The Principal and ERA are invested together using the same asset allocation but they differ in how they can be used by law: the Principal is permanent savings, and the ERA is available to spend. Learn more about the Fund's structure at Fund Structure.

Uncommitted Realized Earnings

Funds earned and received in the Earnings Reserve Account (ERA) that have not been assigned or budgeted for future use. These earnings are available for future inflation proofing measures and Percent of Market Value (POMV) draw commitments.

Uniform Prudent Management of Institutional Funds Act (UPMIFA)\

Today, UPMIFA guides best practices for income-providing institutional investors by advocating for a permanent endowment model that rests on three pillars:

a) Investing the portfolio for maximum total return, subject to an acceptable level of risk.

b) Basing distributions on a POMV-based spending rule anchored to the long-term average real return of the portfolio.

c) The legally supported ability to harvest total returns in a manner not constrained by historical distinctions between principal and income.

Unrealized Earnings

The current market value of an asset not yet sold, minus its original cost.

Unrestricted General Fund (UGF)

The State of Alaska’s Unrestricted General Fund (UGF) is a part of the General Fund and includes non-federal money with no statutory restrictions; the legislature has the discretion to spend this money however it chooses. APFC contributes annually to the UGF via the POMV draw.