ASSET ALLOCATION STRATEGIES

The Alaska Permanent Fund has several allocation strategies that include portfolios invested in a variety of asset classes with a similar risk/return profile and a specific asset allocation/risk management role as the entire Fund. The following mandates are within Asset Allocation Strategies: Cash Management, Liquidity Overlay, and Risk Parity.  

KEY PORTFOLIO FIGURES

$3.5 B

as of June 30, 2019

CPI+3%

long-term return objective

5%

TARGET asset ALLOCATION

MANDATE



Cash

Cash investments play an important role within a well-diversified investment portfolio and serve several purposes including protection against potential future increases in inflation, stability for the portfolio, liquidity, and diversification benefits relative to other assets.

Cash, the most liquid security, generally represents money market investments or fixed income securities with weighed average maturities of no greater than 24 months adding stability and diversification relative to other asset classes.

The amount of cash held is determined by APFC’s investment goal, time horizon, risk tolerance, and liquidity needs. Cash is benchmarked to the 3-Month T-Bills.



Liquidity Overlay

The externally managed liquidity overlay program, exposes a portion of the Fund’s cash holdings to equity and fixed income markets through derivative instruments. Over time, this program is expected to reduce the performance drag inherent in holding cash versus risk assets.

The overlay program thus helps with APFC’s liquidity management challenge by allowing us to have certain value of the cash position invested, greatly reducing cash drag and helping the portfolio to meet the performance objectives of the policy. Additionally, the liquidity overlay program helps with other implementation challenges, such us residual manager cash balances, manager transitions, deviation from policy targets, etc.

This strategy is benchmarked to a 65% stocks/35% bonds mix benchmark.



Risk Parity

The Risk Parity program is intended to deliver long-term returns of CPI+5% or better by generating returns that are less correlated to global public markets through balanced allocation of risk rather than allocation of capital. These strategies are designed to control and balance risk. The goal of risk parity is to build diversified portfolios in which various asset classes contribute equal amounts of risk.  By doing so, Risk Parity portfolios are not as dominated by stock market volatility as traditional portfolios are. 

The Risk Parity portfolio is a multi-manager portfolio utilizing investment managers that provide risk-balanced exposure to multiple sources of excess expected return. To avoid investment manager concentration risk, the portfolio contains at least three managers and no one single manager has an allocation of more than 60% of the total Risk Parity Allocation.

PERFORMANCE

Cash is benchmarked to the 3-Month T-Bills. The Multi-Asset Class manager’s objective is to outperform CPI+5% overtime and to target a 0.5 sharpe. Performance reports for the portfolio can be found in the monthly performance reports and in the board meeting packets.