A multimillion-dollar stake in the Alaska chain of supermarkets Three Bears is one of the most recent additions to Alaska Permanent Fund Corp.’s $200 million investment in the state program.
The program, which was approved by board members in 2018 is almost done buying its investments. The board of trustees of the company was given news of the programme during the quarterly meeting last week.
The program in Alaska has been an unexplored terrain to the $76 billion Permanent Fund and its managers. The corporation, which oversees the fund, has mostly abstained from investing in Alaska throughout its history.
Alongside Three Bears, the new state investments include the securing of millions on a business that runs flights at Ted Stevens Anchorage International Airport as well as the Anchorage-based All Alaska Tours, a company that produces seaweed called Macrooceans and an electric cargo-ship company known as Fleetzero as well as a company that is looking to transform hydrocarbons from natural gas to hydrogen.
APFC is a’strategic minority investor in Three Bears
These are all “private equity” investments where an investment company is able to invest Permanent Fund money into a business that isn’t traded on the stock market. Private equity investments typically are secretly protected However, they aren’t. The Permanent Fund has been more transparent about its state-owned investments.
Three Bears investment Three Bears investment was directed by Barings which is a multibillion-dollar international investment company that manages 50% of the state investment program.
In the past, Barings invested Permanent Fund money into Three Bears together with Westward Partners, a Seattle-based private equity firm.
This investment was widely reported during the period however the involvement of the Permanent Fund was not revealed until later. James Cartales, managing director of Cascadia Capital in Seattle was involved in coordinating the venture.
He declined to reveal the exact amount but described the Barings-managed Alaska Future Fund a “strategic and minority stakeholder of the Three Bears business” and described it as “a large-scale investment.”
The Alaska Future Fund is the name given to part of the APFC’s local investment venture. The other portion, which is managed through McKinley Capital Management, is known as the Na’ Nuk Fund.
Three Bears’ marketing director hasn’t returned a phone call or email asking for a response, but since the purchase was made, the supermarket chain has been expanding across the country with new stores being built located in North Pole, Saxman (near Ketchikan), Eagle River, Cooper Landing, and maybe Ester to the just west of Fairbanks.
“This gives us to have the financial support needed to open stores more quickly and also expand faster,” marketing director Jim Kolb told the station KUAC-FM in January.
Steven J. Center Steven J. Center, director of operations and investment consultant at Callan and Associates, the Permanent Fund Corp.’s leading outside advisor, told members of the House Finance Committee last week that it can take three years to evaluate the effectiveness on private equity-backed investments similar to those that the Permanent Fund is making in Alaska.
“The state-sponsored investment program is in its infancy , for all purposes and intents,” he said.
“It is still too for us to know how they’re doing,” Center told lawmakers.
When asked this week about the evaluation, Deven Mitchell, executive director and CEO of the Permanent Fund Corp. said that he agreed.
“I am inclined to believe with him that it’s still too early to know,” he said.
Some board members express concern
Although it’s not possible to assess the exact returns however, in-state investments have been performing poorly in comparison to private equity investments managed by Permanent Fund Corp. during the same time.
A report by the staff found it was noted that Alaska Future Fund “ranks in the lowest quartile of investment portfolios in the vintage year of 2019 in the APFC’s portfolio of private equity,” while the Na Nuk Fund “ranks in the lowest quartile of investment in the vintage year 2020” within that same portfolio.
APFC Chief Investment Officer Marcus Frampton, said last week that if there was another $1000 to invest in an equity-based private investment, “I probably wouldn’t pick (the in-state program) as the next increment dollar.”
Following the report, several APFC committee members expressed concerns about the performance and stated that they were not in favor of investing additional funds in the state-wide program.
“I’m concerned about this program, since we’re trying to be best money management experts we can,” said board member Steve Rieger.
Jason Brune, a board member and commissioner for the Alaska Department of Environmental Conservation He also said he’s “nervous” regarding the possible “politicization of the investments we make.”
“I’ve experienced it myself,” he said. “There are some projects I’m allowing, which I am aware of that are making use of as the names of the Permanent Fund to hype up their projects by claiming they are investing in they are investing in the Permanent Fund is investing in these projects. That’s scary.”
A motion that sought to limit future investments in state securities during the board’s May meeting did not pass the trustees. Four votes were needed. There were three votes for three against two and one member abstained.
Rieger as well as Brune were joined by the revenue Commissioner Adam Crum. Ellie Rubenstein, a private equity investor, did not attend.
The board member Craig Richards, who voted against the motion with chairman Ethan Schutt, said before the vote that it was “a small amount of unfair” to prevent future investment when trustees do not know what investment they would be like.
“The returns aren’t terrible. They’re not fantastic. They’re probably around where I’d have expected them to be for Barings and less for McKinley. However, the issue isn’t about what they did. The issue is: “What do we can expect from their performance in the near future?”
In response to a question this week Mitchell, the Mitchell, the CEO Mitchell stated, “I would want to provide an opportunity for the fund to show some performance because of its long, non-liquidity, but unless it begins to show traits or showing performance consistent with top-quartile performance it’s hard to put more money into this allocation.”
Before being appointed as the Permanent Fund Corp. CEO, Mitchell served briefly as commissioner of the Alaska Department of Revenue and served as a member of the Board of directors of the Alaska Industrial Development and Export Authority which is obligated by law with investing in state-sponsored programs.
“They are often the subject of negative press because they do what they’re told to perform,” he said. “In my opinion that they’re instructed to do something, and then they’re accused of doing something that isn’t possible. We would not like to be involved in the same business.”
This article first appeared within the Alaska Beacon and is republished here with permission.
