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, the Multi Asset Class – ECIO program and Currency Management.

KEY PORTFOLIO FIGURES

$4.5B

as of June 30, 2017

41

Foreign Currencies

6%

Target 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, is categorized within the tradable income category and 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 and risk tolerance. Cash is benchmarked to the Barclays 3-Month T-Bills and is managed internally.



Multi-Asset Class

The design of the Multi-Asset Class mandate consists of partnering with “best in class” institutional asset management firms to be the Fund’s “external CIOs.”

There are several objectives related to this strategy. First and foremost, the external CIOs will strive to produce the Fund’s 5% real return objective, while operating within the Fund’s overarching risk guidelines. The expectations are that they will produce superior risk-adjusted returns with lower volatility, smaller drawdowns and higher liquidity. The external CIOs are responsible for setting the asset allocation, active risk budgeting and hiring internal management teams. Their primary goal is to create an asset mix that will provide with the optimal balance between risk and return while employing sophisticated analytical tools to properly align an investment strategy.

Another role of this program is the Fund’s ability to build and extend APFC’s investment team beyond the internal staff. Trustees and Staff have the opportunity to work and learn from the external CIOs in many ways: what risks they monitor and how often; their varied approaches to asset allocation; and their process of allocating risk between the markets and manager’s skill.



Currency Management

As an enhancement to its risk management program, the Alaska Permanent Fund Corporation is implementing an actively managed currency overlay strategy for a portion of its total foreign currency exposure. APFC has foreign currency exposure across its fixed income, public equity, real estate, infrastructure, and private equity portfolios.

The objective of the program initially will be to dynamically overlay approximately $2 billion in total foreign currency exposure allocated roughly in line with the exposures of the MSCI ACWI IMI ex-US index. The limits on the hedging program will range from 0% to 100% of  the underlying currency exposure. The program will be actively managed, and will be primarily focused on risk mitigation, meaning that it is expected to add to return during periods of weak foreign currencies, while detracting as little as possible from return during periods of strong foreign currencies. Currently this program is managed by a single manager.

Currency Management

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PERFORMANCE

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