The Alaska Permanent Fund Corp. probably won’t seek higher risk investments in its efforts to boost the value of its fund up to 100 billion dollars, the board of trustees voted Monday, as the board sat down to finish a 4-year strategy plan.
The final adoption of this plan is expected to be given in December, however, board members have considered raising the target for investment of the fund to $100 billion in five years. The current goal is 5%, which includes an inflation rate according to the index of consumer prices.
At a working session that took place on the Monday morning, trustees discussed everything, but they explicitly rejected the idea, after advisers had suggested it was especially risky.
“I think it’s likely that it will remain at the CPI plus 5 in light of the lively debate today,” said board chair Ethan Schutt.
The board hasn’t officially proposed increasing the investment goal of the fund but it’s an integral part of any plan to boost the value of the fund to $100 billion within the next five to seven years.
“If we choose to aim for 100 billion dollars within a specified timeframe this could mean the board changing its (target),” said Marcus Frampton, the fund’s chief investment officer.
Mathematically speaking, reaching $100 billion within five years will have to yield an average of 9.3 percent — about 7 percent above inflation expectations.
To do this, it would be necessary for an investment fund that is “aggressive,” Frampton said.
“Would I make that target for myself? I’m not sure,” he said. “I’m not certain I’d be able to make that 9.3 numbers.”
To reach that goal is likely to require more money in private equity accounts that are risky and borrowing money to invest the staff told.
In one scenario, the fund could have lent up to $18 billion, one quarter of the fund’s current value.
Britt Harris, interim director for the Texas Permanent School Fund and an active member of the Permanent Fund Corp.’s investment advisory group, has said that it’s “probably reckless” to aim for the 7% rate plus inflation.
Both Harris as well as fellow member of the investment advisory group George Zinn, treasurer of Microsoft and Microsoft, suggested to the board to aim for the return of 4% insteadwhich is below and not over the current 5% goal.
A target of 4% is also lower than the amount that is transferred annually from the Permanent Fund to the state Treasury every year.
However, despite the disadvantages that a lower goal has, it has fewer risks and is consistent with the other funds’ strategies according to board advisers. Harris stated that the norm is lower returns on financial investments this is the reason the reason why the board has decided to consider the recommendation of 4.
“Anything that is higher than 5 percent can begin to appear like an anomaly when you’re looking at the public’s money” explained Greg Allen of Callan the Permanent Fund Corp.’s third-party advisory firm.
Although the board resisted the possibility of changing its investment goals but it did request staff to create an action plan that calls for modifications to the state’s law.
The board members have said that they’re interested in exempting procedures for hiring at the highest level that include executives of the corporation or chief investment officersexempting them from the open meetings act in the state.
This would enable candidates to apply for the jobs without their current employers being aware. Schutt admitted that he’s been dissuaded from submitting applications for public positions for himself.
“If you must give the employer notice they are planning to quit, and you aren’t able to be hired it could have serious consequence,” he said.
Additionally, the board expressed an interest in legislation that would exclude Permanent Fund Corp. Permanent Fund Corp. from the state’s procurement rules, as well as another change that shields the personnel records of top-level employees of the State from its open record law.
The story was originally published in Alaska Beacon and is republished here with permission.
