INVESTING

FOR ALASKA

RISK MANAGEMENT

The Alaska Permanent Fund Corporation’s long-term goal for the Fund is to achieve an average real rate of return of five percent (C PI+5%). It is recognized that there may be years, or a period of years, when the Fund does not achieve this goal followed by years when the goal is exceeded. Yet, over one or more business cycles the Board seeks to achieve an average annual real rate of return of CPI+5% at risk levels broadly consistent with large public and private funds. To do this, APFC must identify, measure, and manage the risks it faces, using various approaches.

The Fund’s market risk is primarily determined by the composition of the Board’s investment allocation. This allocation will be equity-dominant given the Fund’s long-term investment horizon, but will include multiple asset classes that contribute varying levels of risk and correlation assumptions.

The Alaska Permanent Fund Corporation emphasizes the importance of looking at risk not only from traditional quantitative methods such as Value-at-Risk, Tracking Error, but also examines risk factors from several other perspectives to enhance its risk management. Some risk factors affecting the Fund are:

MARKET RISK: Investments fluctuating in value because of economic developments and other events that affect the market (equity risk, interest rate risk, currency risk).

LIQUIDITY RISK: The possibility investments cannot be traded when necessary, without impairing the market price.

CONCENTRATION RISK: Excess exposure to any one individual strategy, sector, geography, event, etc.

INFLATION RISK: Loss of purchasing power due to the value of investments not keeping up with an increase in prices.

Staff monitor and report quarterly on risk assessment to the Board of Trustees.

Consistent with the Fund’s return objectives and risk tolerance , a long term “Sharpe Ratio” of at least 0.5 will be targeted for the overall Fund. The Board has defined and approved Risk Guidelines to clearly delineate the amount of absolute and relative risk the Staff may take to achieve the investment objectives.