A multimillion-dollar share of the Alaska grocery store chain Three Bears is one of the latest additions to the Alaska Permanent Fund Corp.’s $200 million in-state investment program.
The program, ordered by the board in 2018, has almost finished buying its investments, and the corporation’s board of trustees received an update on the program at a quarterly meeting last week.
The in-state program has represented relatively uncharted territory for the $76 billion Permanent Fund and its managers. The corporation, which manages the fund, had mostly avoided investments within Alaska for most of its life.
In addition to Three Bears, the new in-state investments include millions spent on a company that operates aviation services at Ted Stevens Anchorage International Airport, Anchorage-based All Alaska Tours, a seaweed-product company called Macrooceans, an electric cargo-ship company called Fleetzero, and a firm seeking to convert natural gas into hydrogen.
APFC is ‘strategic, minority investor’ in Three Bears
All of those actions are “private equity” investments in which a management company invests Permanent Fund money into a company that isn’t being actively traded on stock markets. Normally, private equity investments are closely guarded secrets, but the Permanent Fund has been more open about its in-state investments.
The Three Bears investment was directed by Barings, a multibillion-dollar global investment firm charged with managing half of the in-state investment program.
Last year, Barings co-invested Permanent Fund money into Three Bears with Westward Partners, a Seattle-based private equity firm.
The investment was publicized at the time, but the Permanent Fund’s involvement was not. James Cartales, managing director of Cascadia Capital in Seattle, helped coordinate the investment.
He said he can’t disclose the exact figure but called the Barings-directed Alaska Future Fund a “strategic, minority investor in the Three Bears business” and characterized it as “a multimillion-dollar investment.”
The Alaska Future Fund is the name for half of the APFC’s in-state investment project. The other half, directed by McKinley Capital Management, is called the Na’ Nuk Fund.
Three Bears’ marketing director didn’t return a call or email seeking comment, but since the investment, the grocery store chain has been expanding statewide, developing new stores in North Pole, Saxman (near Ketchikan), Eagle River, Cooper Landing, and possibly Ester, west of Fairbanks.
“This allows us the financial backing to open more stores quicker and be able to spread out faster,” marketing director Jim Kolb told KUAC-FM in January.
Steven J. Center, senior vice president and investment consultant for Callan, the Permanent Fund Corp.’s leading outside adviser, told members of the House Finance Committee last week that it takes about three years to judge the success of private equity investments like those the Permanent Fund is making in Alaska.
“The in-state investment program is still in its infancy for all intents and purposes,” he said.
“It is too early to tell how well they are doing,” Center told lawmakers.
Asked this week about that assessment, Deven Mitchell, executive director and CEO of the Permanent Fund Corp. said he agrees.
“I tend to agree that it’s too soon to tell,” he said.
Some board members express concerns
While it’s impossible to judge absolute returns so far, the in-state investments are performing poorly when compared to out-of-state private equity investments made by the Permanent Fund Corp. during the same period.
A staff assessment noted that the Alaska Future Fund “ranks in the bottom quartile of vintage year 2019 investments in APFC’s private equity portfolio,” while the Na’ Nuk Fund “ranks in the bottom quartile of vintage year 2020 investments” in the same portfolio.
APFC Chief Investment Officer Marcus Frampton, said last week that if he had another dollar to spend on a private equity investment, “I probably wouldn’t pick (the in-state program) for the next incremental dollar.”
Following that assessment, several APFC board members expressed concern about that performance and said they would not support spending additional money on the in-state program.
“I’m worried about this program, because we’re trying to be the best money managers we can,” said board member Steve Rieger.
Jason Brune, a board member and commissioner of the Alaska Department of Environmental Conservation, said he’s also “nervous” about the potential “politicization of our investments.”
“I’ve lived it,” he said. “There are projects that I am permitting, that I know are using the name of the Permanent Fund to hype up their projects, saying that the Permanent Fund is investing in them. That’s scary.”
A motion to consider limiting future in-state investments at the board’s upcoming May meeting failed to pass the trustees. Four votes were needed. There were three votes in favor, two against and one member abstaining.
Rieger and Brune were joined in favor by by revenue commissioner Adam Crum. Ellie Rubenstein, a private equity investor, abstained.
Board member Craig Richards, who voted against the motion along with board chair Ethan Schutt, said before the vote that it is “a little unfair” to block further investment when trustees don’t know what that investment would look like.
“The returns are not terrible. They’re not great. They’re probably about where I would have expected for Barings and lower for McKinley. But the question isn’t just how they performed. The question is, what can we expect for performance in the future?”
Asked for his opinion this week, CEO Mitchell said, “I would want to give an opportunity for that fund to perform just because of that long illiquid life, but unless it starts generating characteristics or performance that is indicative of top-quartile performance, it is difficult to throw more money at the allocation.”
Before appointed the Permanent Fund Corp. CEO, Mitchell served briefly as commissioner of the Alaska Department of Revenue and sat on the board of the Alaska Industrial Development and Export Authority, which is charged by state law to invest in in-state programs.
“They get a lot of negative press, unfortunately, for doing what they’re directed to do,” he said. “In my view, they’re told to do something and then they’re criticized for doing an impossible job. And so we definitely don’t want to get into that business.”
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Correction: This article has been updated to reflect the correct name of Callan.
