Permanent Fund trustees' strategic plan falls flat, for good reason

The Permanent Fund trustees rejected key measures in a proposed strategic plan Monday, declining to raise the target rate of return for investments or approve borrowing additional billions to increase private equity investments, the main elements in an attempt to try to speed the growth to a $100 billion fund.

The trustees suggested asking the Legislature for the OK to borrow perhaps $4 billion to make more investments, which Craig Richards called a “modest leverage authority.” That may be debated at a December meeting.

The trustees spent all of 30 seconds talking about getting the Legislature to amend the law and allow more private meetings before abandoning that topic. No one was in favor of it, though trustee Jason Brune repeated his claims that the Open Meetings Act restrictions are excessive. Public opposition on this was effective.

There was some support from Brune and Gabrielle Rubenstein for opening a new office in the Lower 48 or overseas, both topics that some of the trustees had discussed in private. They said they want to keep thinking about that.

Rubenstein said she and trustee Craig Richards said they want to take on “a little more risk.” They haven’t said exactly what they mean. Alaskans have no idea what they mean.

Rubenstein advocated for a $250,000 annual plan to have a global media communication service on contract and said she has been working on this with the staff. The trustees approved the plan unanimously. (This is not a good use of $250,000. )

The trustees also added about $400,000 for a “mid-level” corporation employee to handle more private equity investments in-house.

The trustees complained Monday about blog posts regarding their proposed strategic plan, claiming the specifics were just the product of “brainstorming” exercises and that the requirements of the Open Meetings Act prohibited the entire board from taking part in the process in recent months.

Borrowing billions more to invest more in private equity, hiring outstanding performers to beat benchmarks with returns and raising the investment target growth rate of 5 percent plus inflation were the major so-called “levers” to speed the growth of the fund to $100 billion.

Contrary to claims by the trustees, all the trustees could have participated by scheduling and holding public meetings. The trustees didn’t do that.

They opted to have three trustees meet privately on a weekly basis—which did not trigger the Open Meetings Act rules—instead of calling formal meetings. The private meetings of the three board members produced ideas that fell flat.

The decision to not hold public meetings to work out differences on fundamental changes in the operation of the fund contributed to the awkward discussions the trustees held Monday.

Raising the target investment rate of return now above the traditional 5 percent plus inflation target would have made the Alaska Permanent Fund an outlier among major institutions, a red flag for Alaska if there has ever been one.

The fund’s investment advisors say that raising the investment target was the wrong thing to do. One adviser said the target should be decreased to 4 percent plus inflation.

The top staff of the Permanent Fund also said that there should be no increase in the target. After hearing from those experts, the trustees said they oppose increasing the target investment rate above 5 percent.

Marcus Frampton, the chief investment officer of the fund, said he does not support putting more money into private equity investments, which he said would be mandatory if the overall target investment rate was raised.

There was a fatal flaw in this strategic plan effort, the failure to involve the public and the Legislature in creating a strategic plan. Without active participation and involvement by the public and the Legislature, this is not going to work.

The public discussion had the tone of a brainstorming session, not a meeting to take final action.

The only “deep dive” the staff took was into the idea of borrowing additional billions to increase the potential for returns, the so-called “leverage” option. Legislators and the public have heard next to nothing about any of this.

If the Permanent Fund raised its current target return—5 percent, plus the rate of inflation—borrowing billions more to increase investments would have been essential, said Marcus Frampton, the chief investment officer.

This has not been covered by Alaska news organizations and the Permanent Fund has not reached out to Alaskans with an analysis of the pros and cons or talked to the Legislature.

It is unfortunately true that many Alaskans don’t know the difference between the Permanent Fund and the Permanent Fund dividend. The trustees haven’t done enough about that.

The Legislature should be investigating and holding public hearings on this, but the Legislature has failed for decades to exercise its responsibility to provide oversight of the Permanent Fund.

AUM, in this chart presented to the Permanent Fund trustees, means assets under management.