An investment by the Alaska Permanent Fund in the seafood processing company Peter Pan was supposed to be an investment in Alaska, but it ended in failure, to the tune of more than $29 million.
That's because Peter Pan collapsed, resulting in the closure of the fish processing plant in King Cove, its main economic engine.
While the players are still sorting through the Peter Pan debacle, there are some big questions about whether the $80 billion Permanent Fund -- the state's largest source of income, which also pays residents an annual dividend -- should even be investing in Alaska-based companies.
Nat Herz with the Northern Journal, in collaboration with ProPublica and the Anchorage Daily News, recently wrote about the Peter Pan failure. Herz told Alaska Public Media's Casey Grove that an investigation revealed that Permanent Fund leadership and its hired investment firm, McKinley Capital Management, either missed or ignored some warnings signs that Peter Pan was a risky investment.
Below is the transcript of an interview with Herz on Alaska News Nightly. It has been lightly edited for length and clarity.
Nat Herz: The job that McKinley, the finance firm, was doing on behalf of the Alaska Permanent Fund, was basically going out and looking for companies that sort of had growth potential or were undervalued and that they could sort of buy into and generate more money and sell it off at like a big profit. And so one of the companies they ended up focusing in on was this Peter Pan Seafood, which was like a long-time corporation that bought and processed and sold the catch of Alaska fishermen.
So they have this enormous plant in King Cove, this small community way out there on the Alaska Peninsula. They had a few other plants kind of scattered across the state. So the idea here was, "OK, we'll put new money into these plants, like, buy new processing equipment, maybe, and buy more seafood, and raise the level of of revenue and throughput in the plants, and then we'll have, like, a much bigger sort of book of sales, and we'll be able to sell the company for a big profit."
Casey Grove: I mean, that sounds great, so what's the problem with that?
NH: Well, it does sound great, but generally speaking, the seafood industry is like a really chaotic and volatile industry where you kind of have, like, boom years and bust years, and so the idea that you could sort of easily build your revenues up and just sort of sell it for a profit like this— It's a cutthroat industry. It has a lot of other existing players that are trying to maximize profits. And the other thing that really happened here was you had this kind of overall meltdown in global and Alaska seafood markets, and so, like, this reformulated Peter Pan, like, ran right into that.
CG: It sounds like there were some red flags that were missed. But did you see anything in terms of, like, I don't know what, actual malfeasance or anything else shady?
NH: The short answer is no. I mean, I think that's been a lingering sort of challenge to the reporting. I think, you know, certainly people in King Cove are really quick to blame this really colorful seafood industry player, Roger May, who's like a very wealthy, you know, kind of flamboyant guy who produces Hollywood movies and hunts for buried treasure, and just like, seems to have all kinds of money everywhere, and actually, through sort of this receivership, sort of bankruptcy-like process, ended up with a lot of the company's assets.
But I think, you know, you kind of have everyone pointing fingers at each other, like, I think the Permanent Fund points fingers at McKinley and says, "This was a McKinley deal." You end up with McKinley and the other of the three partners in the business deal pointing fingers at Roger May and saying, "It's his fault."
Roger says, "It's not my fault. I loaned the company a bunch of money and lost a bunch of my own money." But the fishermen, meanwhile, like, they're mad, and they don't feel like there's been a lot of accountability either.
But I don't think, sort of, we are at the place where we can conclude that any one thing was to blame, so much as, like, there was a constellation of things that appear to have contributed to this collapse.
CG: You mentioned the fishermen in King Cove and that they would be upset by this, but it goes a little bit further than that, right? I mean, in terms of the economic impact in King Cove? And I wonder if you could tell me about that.
NH: Yeah, so one of the major reasons I think I was drawn to this story initially was that you had fishermen who went out, caught fish, or had, you know, paid to, like, upgrade their nets and fix things and get their boats out on the water, and were gonna go fish for Peter Pan. And then Peter Pan, all of a sudden closed down the plant and said, "Yeah, we, you know, still owe some of these fishermen money from past catch that we bought and sold, but we don't have any money to pay them."
So you've got fishermen out, like tens, if not hundreds of thousands of dollars. And beyond that, this is a community that is built on commercial fishing. You know, the huge chunk of King Cove's tax revenue comes from taxes on the catch that's delivered to the processing plant there. It's a huge employer in the community. It's like a huge, sort of anchor tenant for, like, all these municipal services, power, water, etc, and so without it, you're seeing families moving away, like the enrollment at the school has like fallen. You have, like, the potential for them to ask, like, the state for, you know, aid, basically a bailout.
And I think what is really ironic, and another sort of reason I felt like this was really a story that Alaskans needed to know about, was like, we kind of did this to ourselves, right? Like a state investment that ended up going bad is now leading to, you know, maybe, like, the slow, or not even so slow, death of this community, and a situation where, like, actually, they may need to be coming back to the state for, like, more money.
And I think that's, you know, whose fault that is, and why exactly it happened, I mean, I think those are actually really important questions that, like, we should be asking ourselves, given that you know this happened, if not because of decision, public policy decisions that we made certainly connected to public policy decisions.
CG: So, I mean, just zooming out from that, though, this idea that the Permanent Fund would invest in companies in Alaska, how's that going? I mean, is this a is this an example of a failure that says maybe we're not going to do this anymore, or what?
NH: So there has been sort of a gradual change in the makeup of the Permanent Fund Board of Trustees, and two years ago, in 2023, The board voted basically to say, "We're going to keep this $200 million that we originally invested in this Alaska-focused program." But initially they had been looking at adding more money to that, and they made the decision to say, "We're not going to do that anymore, like we don't feel comfortable or confident in this."
Interestingly, I mean, our conclusion, this was, another thing we sort of looked at, was to say, like, is this an example of a way in which this program has failed? I've mentioned before there were two different companies that got each half of this $200 million carve out of the permanent fund. (One was) McKinley, which did this Peter Pan deal. Their performance is effectively like the worst of any of the privately managed funds that the Permanent Fund has — (it has) like dozens and dozens and dozens and dozens — and so to the extent that they're representative, like, I think, that they clearly have not done well.
On the flip side, this other company, Barings, which is, like, not based in Alaska, sort of part of this, like, big, I think, well regarded, like, national scale finance firm, their investments have done pretty well, like they're making money. I think there's been some controversy with some of them, like they're invested within, like, a pretty controversial mining company. And there's also been some controversy about, like, the kind of secrecy surrounding, like, which companies did they actually put money into? But I think, you know, you've got this kind of real, like, split screen of like, one of the investors has done pretty well. One of them has not done well. And so I think, you know, we certainly weren't at the place in our reporting where we were ready to say this whole program has been a failure. I think they're sort of interesting data points that show, you know, maybe there are some lessons to be learned here if we ever were to do this again. And I think if we were to do it again, that would be up to the Permanent Fund Board of Trustees to decide.
