The Alaska Permanent Fund Corporation trustees plan to meet Oct. 30 to decide on a future strategy to accelerate the process of turning the $75 billion fund into a $100 billion fund.

Just about every step the six trustees are talking about, however, should not be taken without support from the Legislature and a great deal more public involvement.

Taking on greater risk to increase the targeted rate of return above the long-established goal of 5 percent plus inflation is one way the trustees might try to get to $100 billion in five years or eight years or 11 years, depending upon the expected rate of return.

To reach $100 billion in five years, the fund would need an annual return of 9.7 percent.

Of course, getting to $100 billion is not guaranteed and a bad year or two could turn the $75 billion fund into a $50 billion fund.

Just two years ago on Oct. 22, 2021, Gov. Mike Dunleavy celebrated “the unprecedented increase in the value of our Permanent Fund to more than $82.7 billion . . .”

The state budget says this about the 5 percent goal: “Total Fund Return Objective: The long-term investment goal is to achieve an average real rate of return of 5% per year (CPI/inflation +5%) at risk levels consistent with large public and private funds. This objective was established to consider natural inflation and provide a 5% growth over time.”

This long-standing 5 percent target should not be changed by six trustees with varying degrees of experience and financial acumen until the risks are explained, understood and accepted by the Legislature and the public. Judging by his past performance, the governor won’t take a position, but he should because this is part of his job.

The fund staff came up with three “levers” the trustees could use for higher returns.

The first is to increase overall returns by 1 percent by “creating a high-performance driven investment office.” This would mean hiring and keeping a staff of “high performers,” presumably requiring higher wages.

The second lever is to borrow billions to invest (the fund already uses borrowed money for real estate, about 40 percent), which could bump up returns another 1 percent. The added borrowing could be in the range of $10 billion. To generate the added profits, the total amount of leverage would be about 25 percent of the value of the fund, Marcus Frampton, the chief investment officer, said.

The third lever would be to change the asset allocation mix to take on more risk, which could push up earnings by .65 percent. Perhaps that would translate into shifting 4 to 5 percent from fixed income to private equity, said Frampton.

If all went well, the three combined levers might create a $100 billion fund in five years. Might.

Some of the risks, detailed below, range from greater volatility to increased legal and operational risks. The staff did not mention political risk, which would come with all three levers.

In down markets, more billions borrowed and more money invested in private equity would amplify losses.

The Permanent Fund staff lists these risks with the three steps that could be taken to improve the targeted return of the fund. The “Alpha” choice is to make it an office with higher performance standards, while “leverage” means borrowing more money and asset allocation means changing the mixture of investments to pick those with higher potential returns.

Another idea under review is to increase the size of the Permanent Fund staff to take on more responsibility for handling investments, which would allow a reduction in investment management fees, which totalled $457 million in the last fiscal year.

Of that total, $343 million was collected by investment managers before net profits were returned to the Permanent Fund, a figure not included in the state appropriation of $95 million for investment management fees. The fund also shared $271 million in profits with finance contractors in the form of performance fees for exceeding benchmark returns.

Total salaries for Permanent Fund employees are about $20 million this fiscal year, as much of the work is handled by private investment managers under contract.

Opening one or more fund offices Outside or in foreign countries is being floated as an idea about how to grow the fund, but the trustees haven’t demonstrated why that would work.

The fund trustees discussed elements of a proposed strategic plan in some detail at the annual meeting Sept. 28, though some wasted a lot of time whining about the requirements of the state Open Meetings Act.

Ethan Schutt and Craig Richards are the only trustees taking a logical position on this, recognizing that the Open Meetings Act is not going to be changed or modified for the APFC.

Jason Brune, Ryan Anderson, Adam Crum and Ellie Rubenstein should realize that meeting in public and sharing their ideas about the fund in public comes with the position.

No more than three of the Permanent Fund trustees can meet at a time without triggering the legal requirement to meet in public. To avoid meeting in public, three board “volunteers” have been meeting privately to come up with ideas for the strategic plan.

The easy way to clear the three-member roadblock is for the trustees to announce their meetings, allow public access and discuss matters in the open.

Rather than interpreting the legal requirement for open meetings as a handicap, the trustees should think of it as a positive that builds public trust in the institution. Brune’s repeated claims that the trustees need more off-the-record meetings will erode public trust.

Since the trustees have not met regularly in public to hash out a strategic plan draft, we still don’t know what proposals will be considered Oct. 30 or how things have changed since the Sept. 28 document listed below.

The APFC has yet to post an agenda or updated elements of a draft strategic plan even though a statement at the annual meeting Sept. 28 said the “process will culminate in an October 30 board meeting to consider and approve an updated plan.”

Your contributions help support independent analysis and political commentary by Alaska reporter and author Dermot Cole. Thank you for reading and for your support. Either click here to use PayPal or send checks to: Dermot Cole, Box 10673, Fairbanks, AK 99710-0673.

Permanent Fund wants path to $100 billion; trustees may call for taking higher risks for higher returns