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Booming stock market helps Permanent Fund hit $45.5 billion

Jerzy Shedlock

As Alaskans applied for their share of the bonanza, the Alaska Permanent Fund reached a new high of $45.5 billion, thanks to records being set in the U.S. stock market, particularly the Standard & Poor's 500 Index and the Dow Jones Industrial Average.

In the four years since Wall Street bottomed out, the Permanent Fund has shot up in value about 60 percent. But Alaskans shouldn't get their hopes for a bonanza too high. The Alaska Permanent Fund Corp. (APFC), which manages the fund's investments, is projecting the annual dividend to qualifying state residents will be less than $800 this year.

The Permanent Fund, seeded with oil royalties, is invested in stocks, bonds and real estate worldwide. Alaska residents receive a portion of the investment earnings each year -- the PFD, as it's called -- making the Permanent Fund one of the world’s most unique state-run oil funds.

The Permanent Fund's total return has grown 10.3 percent since July 1, when the corporation began fiscal 2013. As of Feb. 28, the Permanent Fund's overall cash flow increased by $1.7 billion, which feeds into the dividend's five-year average used to calculate the annual payout.

The best year in the Permanent Fund's history was 1985, when the Fund's returns increased by 25.6 percent. More recently, 2011 saw the third-largest increase in returns at 20.6 percent, said Laura Achee, APFC's communications director.

In contrast, 2009 was the worst year. The Permanent Fund had a negative return of 18 percent, Achee said.

The Alaska Legislature created the Permanent Fund in 1976 with the goal of preserving some of the state's oil wealth after the big discoveries on state lands. Six years later Alaskans were made Permanent Fund shareholders. Every man, woman and child would receive an annual dividend. Since then, the Permanent Fund has paid out $19.8 billion in dividends. Last year, eligible Alaskans received $878 checks.

The stock market's record highs have helped the Permanent Fund in more recent times, as it is invested in stocks from more than 6,000 U.S. companies. The S&P 500 closed at a record high Thursday, beating its previous record set in October 2007. The Associated Press reported the S&P rose six points to 1,569, a gain of 0.4 percent, beating its previous record by four points. The index is still a bit shy of its all-time trading high of 1,576.

Domestic equities, or U.S. stocks, make up 20 percent of the permanent fund's investments, Achee said.

The corporation is approaching the end of its third quarter for fiscal 2013. As of Feb 28, U.S. stocks made up about $6 billion of the Permanent Fund's investments, and the returns on U.S. stocks had increased by 14.6 percent for the fiscal year.

"Our strongest asset over the past three months is U.S. stocks," said Permanent Fund Corporation Director Mike Burns. "Across the board, the U.S. stocks are very strong."

Burns said the strongest assets are U.S., global and international stocks, in that order (global stocks include both U.S. and international investments). The returns on global stocks have increased 16.4 percent fiscal year to date, while international stocks have increased 17 percent.

Those increases occurred due to planning by the corporation's investors, Burns said. On March 9, 2009, stocks bottomed out. The Dow was on its fourth-straight week of losses, while the S&P 500 was below 700 for the first time in 13 years, according to a report by Forbes.

Wall Street didn't take that drop in stride. Forbes details the panic: One managing partner at a hedge fund interviewed by The New York Times advised wealthy clients to buy shotguns to protect themselves against social unrest, should the market fall much lower.

While hedge fund employees predicted doomsday scenarios, the Permanent Fund Corp.'s investors dropped $800 million into the S&P in March 2009. The markets looked beat, Burns said, so it was likely they would start to rebound. At that time, the Permanent Fund was valued at $28.3 billion.

"You have to run toward the fire sometimes," Burns said. "But we'll probably trim back on equities after this point." Instead, the corporation is considering expanded investments in real estate and infrastructure.

By contrast, the bonds used to rebalance the Permanent Fund when stocks aren't so hot have been faltering. In December, the returns on U.S. bonds had increased 3.3 percent, but the returns were down .05 percent for the month. International bonds were similar. As of late February, the increase in returns for U.S. bonds sat at 3.2 percent. Currently, bonds are hard to back, Burns said.

Jerzy Shedlock can be reached at jerzy(at)alaskadispatch.com