Permanent Fund trustee told investment conference in Saudi Arabia last week that strategic plan to hit $100 billion in three to five years would be approved. It wasn’t.
I keep thinking that legislators must be aware of what has gone wrong with the state board created to set policy for the Alaska Permanent Fund Corporation.
But I fear that with few exceptions, legislators aren’t paying attention.
Decades ago the Legislature abandoned its Permanent Fund oversight responsibilities, trusting that the corporation should be left alone to invest billions and reap the rewards.
A policy structure that made sense 40 years ago when the fund was simple and small—a six-member board that is essentially volunteer with all members chosen by a single person—is no longer adequate for the task of overseeing a $74 billion fund. Investments have grown increasingly complex and opaque.
A full-time board, with specific qualifications for membership, may be warranted. The current board members get $400 per day for meetings, along with per diem and travel.
The problem has been exacerbated by a governor who names state commissioners with no experience in finance—Adam Crum as revenue commissioner for example—and fills the other seats on the six-member board with political supporters. The trustees do not have to be confirmed by the Legislature.
Last week at the Future Investment Initiative conference in Saudi Arabia, Gabrielle Rubenstein, one of the six trustees, predicted that the Permanent Fund would make fundamental policy changes this week to bet on riskier investments and put more money in private equity.
Among the other speakers at this gathering of the world’s financial elites was David Rubenstein, private equity titan and billionaire co-founder of the Carlyle Group, who is Gabrielle Rubenstein’s father.
That the Permanent Fund prepared a draft strategic plan to take on more risk to get higher returns and that the chief proponent, Rubenstein, thought it would be approved, is striking.
Legislators and the public were not part of the private weekly discussions by Gabrielle Rubenstein, Jason Brune, Craig Richards and early on, Adam Crum, that led to the $100 billion strategic plan.
“My baby has been our $100 billion strategic plan that we will hit over the next three to five years. So we’re unveiling that next week,” she said in Saudi Arabia during a session on “New Faces of Global Capital.
Hitting $100 billion in five years would require the fund to adopt a higher target rate of return—inflation plus 6.8 percent, compared to the long-established target of inflation plus 5 percent. A higher target means higher risk.
Rubenstein told the Saudi gathering that the Permanent Fund would shift more money into private equity, contrary to headlines earlier this year that said a reduction to 15 percent was coming. She said, “Boy, was my father not impressed” when the board lowered its proposed private equity target from 19 percent.
She said part of that reduction was because the former head of private equity at the fund had left and time was needed to adjust.
“I will tell you that it’s gonna change. I urge you all, we will finally be in the $100 billion club when we unveil this. And the only way to pull that off will be to increase private equity, so I won my battle with the CIO,” she said, referring to Marcus Frampton, chief investment officer of the Permanent Fund corporation.
She did not suggest that her father had anything to do with the proposal to put more in private equity. And there is no reason to believe that he did. There is reason to believe that Ms. Rubenstein is someone who Dunleavy listens to, which gives her real power on the trustees and with the corporation staff.
Rubenstein said Gov. Mike Dunleavy asked her to serve on the Permanent Fund board in 2022 and she was willing to do so to help raise the profile of women in the investment world. She is the co-founder of Manna Tree Partners, a private equity fund in Colorado.
“And I felt like while I may have a last name known in private equity, there wasn’t a big enough platform to show people why diverse managers could actually outperform,” she said of accepting the position on the Permanent Fund board.
“And so if you are the only female on the largest sovereign wealth fund board in the U.S. and you start telling people we need to allocate more to diverse managers or niche sectors where they are not represented by some of these larger funds, I felt that maybe I would be doing my part to move the needle,” she said.
“I didn’t seek out being on the board of the Permanent Fund. I actually got a call from our governor in Alaska 15 months ago, telling me that he hears I’m running around the world quote unquote ‘feeding the Middle East.’ I said, ‘Well yeah, they understand food security. They import 95 percent of their food, just like we do in Alaska.’ He said, ‘Great, can you help me?’”
“So I ended up building him his Office of Food Security and through that he really saw what the tools of public private partnership in sophisticated private equity could do,” she said. “So he asked me to go on the Permanent Fund board.”
I interpret this as Rubenstein saying that Dunleavy wanted her to increase the “sophisticated private equity” investments of the Permanent Fund, taking on more risk.
Rubenstein said that one of the actions that received little attention this year was that the fund gave CIO Frampton a $5 billion “tactical opportunities bucket.”
I think she’s right. This didn’t get enough attention. (In May the board set a goal of putting 2 percent of the fund in “tactical opportunities,” which would be closer to $2 billion than $5 billion.)
“You guys will probably love to hear this, but he publicly said—and we are definitely a state that does not have an ESG mandate—that if he were going to put capital to work today it would be in direct oil and gas investments. And I think that Alaska has actually been one of the few global institutions willing to put money into oil and gas investments, so that was a big reason why we handed him the tactical opportunities,” she said.
The Permanent Fund trustees met Monday and rejected the strategy to aim for riskier investments and reach $100 billion in three to five years. If that meeting didn’t alarm legislators, I don’t know what will. A link to the recording of the Oct. 30 meeting can be found here.
The video below is of Rubenstein’s appearance in Saudi Arabia.
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