Permanent Fund trustees consider fundamental changes in operation with little public review

Far-reaching changes about future operations of the Alaska Permanent Fund—aimed at turning the $75 billion fund into a $100 billion fund—are on the table for the Oct. 30 special meeting planned by the six-member board of trustees.

Here is the agenda posted Monday by the corporation. There is no packet of information to go with it, just a list of topics that touch on fundamental policy questions for the most important financial institution in Alaska.

The agenda doesn’t provide a specific time for public comments on the strategic plan, but says that anyone wishing to give public testimony must sign up by emailing jloesch@apfc.org before noon Friday. The meeting is from 10:30 a.m. to 4:30 p.m.

The agenda includes a proposal to abandon the long-held goal of an investment strategy that produces 5 percent growth above the rate of inflation. The staff proposed three levers that would increase risk and increase the possible rate of return.

The Permanent Fund has not done enough to include the public and the Legislature before making fundamental changes. The six trustees should reconsider the idea that a new strategic plan can be adopted next Monday.

The goal of earning 5 percent above inflation has been with us for a long time. It seems reckless that the trustees would be ready to pick a new higher number with what appears to be cursory research.

The 5 percent target should not be replaced without a statewide discussion of the pros and cons—which has not happened.

“We don’t try to time the markets,” Trustee Chair Steve Frank wrote in 2008. “Instead we build a portfolio that we believe will provide a more stable return under a variety of market conditions, to reach the conservative goal of a 5% rate of return over time above the rate of inflation.”

When the trustees first proposed the percent of market value approach in 2001, they chose 5 percent as the proposed annual payout of the POMV because “5 percent real rate of return is at the high end of what is actually achievable for the Permanent Fund.”

Dave Rose, the first executive director of the fund, began work when the account was entirely in fixed income investments, only gradually evolving to include investments in stocks as the Legislature early on set investment guidelines.

In his book, “Saving for the Future: My Life and the Alaska Permanent Fund,” Rose said he wanted to start with a 3 percent growth target above inflation as a means of allowing time to win public support for the institution and to get the public used to volatility.

“This is very cautious and timid. I was going to go for the 4 percent,” Alaska economist George Rogers, one of the early trustees, told Rose in a February 1983 meeting.

The Permanent Fund did well in those early years and while Rose was given credit, he wrote that he did not deserve it, recalling the words of Trustee Elmer Rasmuson about the blessing of a bull market: “Any turkey can fly in a strong wind.”

The trustees long ago increased the investment return target to 4 percent above inflation and then went to 5 percent at the start of this century.

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