Alaska Permanent Fund board unlikely to pursue faster, riskier path to $100B

The Alaska Permanent Fund appears headed toward maintaining its current steady growth, rather than pursuing riskier, higher-return investments over the next few years.

That’s the upshot from a Permanent Fund Corporation board meeting Monday, according to the Alaska Beacon.

Alaska Beacon reporter James Brooks says the meeting was a sort of brainstorming session, ahead of a decision on a four-year strategic plan for the state’s sovereign oil wealth fund, which pays for both state government and annual dividends to Alaskans.

Brooks says the Permanent Fund board’s discussions are happening in the context of a long-term goal of growing the fund to $100 billion.

Listen:

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The following transcript has been lightly edited for clarity.

James Brooks: But the trick is, how do you get to ($100 billion)? I mean, I’d love to run a 100-meter dash in 10 seconds, but I’d have to run 27 mph to be able to do it. And I can’t do that, Casey. So if you want to get to $100 billion in five years, you’d have to have such a high rate of return, that it’s almost impossible to get without doing some really risky things. Like one of the scenarios that was discussed was that in order to have even the chance of getting the returns, that you’d need to hit $100 billion in five years, you’d have to borrow about $18 billion, which is equivalent to about a quarter of the Permanent Fund’s value.

Casey Grove: When we talk about risky investments, what are we actually talking about? Like risky stocks that they would put their money into?

JB: In the sense of the Permanent Fund, what we’re talking about is private equity. These are companies that aren’t selling stocks, yet. They’re young tech companies, a lot of times, that are looking for investors to say, “Give us money, we’ll build the next great widget, the next great app, and then when we start to sell stock, you’ll make your money back.” The Permanent Fund has had some hits in private equity, but right now, the private equity markets aren’t looking that great. And the Permanent Fund’s advisory board, made up of top investors at Microsoft and in Texas and elsewhere, it said, “You know, right now, most investment funds are looking at lower returns, not higher returns, and so it’d be risky to go out and chase those.”

CG: Yeah, I feel like for me, running a 100-meter dash would be risky in and of itself. But we’re talking about numbers here, we’re talking about money. I guess I wonder, what is the risk? I mean, when you say risky, what are they risking if they they go for a higher return?

JB: Right, in the 100-meter dash, you could slip and fall on your face. But if the Permanent Fund does that, the equivalent is losing value in the fund. And so instead of having more money to invest, there’s less money. And the state’s budget would eventually take a hit, because with less money in the Permanent Fund, that’s less money available for the state treasury, less money for dividends and services. And because the Permanent Fund’s such a big part of the state budget, that means everything else gets affected.

CG: And I think, as you noted in your story at Alaskabeacon.com, the the board “all but rejected” this idea of seeking those higher returns, those riskier investments. What happens next? I mean, I guess they could still decide to go for that, but your sense is that they won’t?

JB: Right. Talking to the trustees, they’re not going to take the riskiest possible approach. They don’t think they can get to $100 billion in five years. That doesn’t mean they might (not) look at different ways to increase returns. That’s definitely possible. They’re planning to include some legislative requests, changes to state law that governs the Permanent Fund, for example, but that’s pretty small in comparison to a change in the fund’s investment targets, which doesn’t seem like it’s going to happen now anymore.