The Permanent Fund Dividend is in the news a lot, but where does that money come from? The Alaska Permanent Fund Corporation is responsible for managing the investment of the $52 billion fund. The corporation does not send out dividend checks, but its investment earnings determine the size of the PFD.
KTOO’s David Purdy visited the state-owned corporation’s office in Juneau to meet some of the faces behind the investments.
The new Showtime drama Billions is set in the high stakes world of New York finance – think hedge funds and Wall Street.
So what kind of drama surrounds the real-life billions at the Alaska Permanent Fund Corporation?
“Whether it’s going well or going poorly – it pretty much looks the same,” said Jim Parise, the corporation’s director of fixed income.
For a guy who manages billions of dollars, Parise seemed really calm.
“It’s just a steady group of people that have been doing it a long time and know what they’re doing,” Parise said.
So what’s the secret to staying so relaxed when you’re responsible for investments are worth every piece of taxable property in Juneau a dozen times over?
“It’s about $52 billion total,” said Parise. “So yeah. We all are managing billions each, but we think of it as units. If you think of it as actual money, you would go crazy.”
But units or not, markets can be unpredictable. The financial crisis comes to mind.
“2008 was really, really tough, because no matter what you did you were getting hurt,” Parise said.
In fact, in the early days of the Great Recession, the fund was literally losing millions of dollars a day.
And it was tough, and we were down quite a bit, but that’s when you’re really tested to see whether or not your philosophy … and your discipline — the way that you manage money works.”
Parise said at the time they placed a lot of “high conviction bets” based on their analysis.
“You knew they were going to come back,” said Parise. “It didn’t feel like it at the time.”
But their bets paid off, and by 2010 the fund was once again seeing positive returns. So what does a day look like when you’re dealing with that much money? Well, it starts early to match the time in New York – Parise gets in at about 5 a.m.
That’s when an issuer like Microsoft may decide to bring a bond deal. They do it first thing in the morning. And so we have to be here to be able to say we’d like some of those bonds or not. And it allows us to do that. If we came in too much later then we would miss out on those opportunities.
A lot of that buying and selling happens on the computer nowadays, but sometimes it still down to a negotiation on the phone.
We have to agree on a price, so we go back and forth. It’s not just a guess – we have, they have very good data, we have very good data, and we use it against each other to try and figure out what the best price is.
So how does he know what’s a fair price? Parise says their analysis often points to a “natural” price that they think a bond is worth. So if the price dips below this natural level, he might take the opportunity to buy it on the cheap. Or he might sell a bond that goes higher before the price comes back down.
This strategy requires patience, and in general the fund relies on taking a long-term approach.
“The nice thing for the fund is we have an infinite time horizon,” said Executive Director Angela Rodell. “So we can make 5-, 8-, 10-year investments, knowing we don’t need to see the returns on that, or realize the returns on that in the next year.”
That kind of long-term outlook could come with some tradeoffs.
Gregg Erickson owns an economic consulting firm, Erickson & Associates. He said that there may be a disconnect between long-term results and who’s responsible for them.
“Well the problem with that is that, in my view, is that the Permanent Fund is a political organization that’s run on behalf of the people of Alaska, and how are the people of Alaska able to judge whether they’ve done well or not if their time horizon is 15 years?” Erickson asked. “By the time 15 years rolls around and you can prove — or 10 years, and you can prove that they’ve either done poorly or well, the people who were responsible for that are long gone.”
The people responsible for that, ultimately, are the corporation’s board of trustees, who are appointed by the governor.
Erickson said evaluating the fund’s performance is also difficult because it’s unique – there aren’t that many multibillion dollar funds with similar goals to compare to. One possibility is the Public Employees’ Retirement System and the Teachers’ Retirement System, often called PERS and TRS.
PERS and TRS have slightly higher returns over the past 10 years, but they also have different goals and strategies: PERS and TRS have to bring in a certain amount of money to cover retirement benefits, while the Permanent Fund Corporation puts a higher priority on preserving the value of the fund.
Ultimately, Parise said he has faith in his colleagues at the Permanent Fund.
“Everybody here is very, very passionate about what they do,” said Parise. “And they’ve dedicated themselves to it, and I think that, you know, Alaskans should take comfort in the fact that there’s people here that really care about the Permanent Fund, they care about Alaska, and they care about managing money.”
The Permanent Fund’s annualized total returns since 1985 are over 9 percent.
