Recently, Alaska's Permanent Fund was denied more staff to expand international real estate and private equity investments. These positions make us money, and we should reconsider.
With over $51.3 billion in cash, Alaska's Permanent Fund is a success. Cash is allocated between national and international stocks, bonds, real estate, private equities and hedge funds. We hire the best advisors in the world. Personally, I have an allergic reaction to riskier investments like International stocks. My bias is toward investing in real estate, at home. Real estate has fixable problems.
In Alaska, our lack of cash for private equity and real estate has resulted in a serious housing shortage. The system of raising capital for small business is broken. While putting more money in private equities and real estate nationally and internationally, Alaska's Permanent Fund redlines Alaska private equity and real estate investments. Unlike other states, Alaska has no Small Business Investment Corporation (SBIC) to raise SBA-guaranteed capital for small business.
Venture funds and angel investors like the 49th State Angel Fund demand high tech, huge upside and huge payback. Most small businesses don't qualify and are literally starving to death in a land awash with investable cash.
This small business capital squeeze is not a stingy banker problem. A bank can only grant a 75 percent commercial loan if the client has the other 25 percent of the cost in private equity. That really affects home builders. Equity determines how many homes are built, what commercial buildings go up and what new businesses are started, bought, sold or expanded. We're losing our local small business base. They're being eaten alive by Outside big businesses with more capital.
Alaska Native Regional Corporations are a bright spot. They all started as small businesses. But, they were well capitalized. Their legislative largesse ($953 million from the state and federal appropriations and 44 million acres of land) capitalize diverse enterprises and grow employment for their shareholders. ANRCs are some of Alaska's largest companies, employing thousands across the nation.
Small business is the economic engine of any economy. But, in Alaska, while our largest companies are flush, small companies are casualties of inadequate working capital. My son's auto detailer is a good example. He's meticulous. His waiting list is four months long. He wants to expand but doesn't have the capital.
When a client showed us a direct mail piece announcing his preapproval for expansion capital of $68,000, we investigated. Our property management company was initially approved for $86,000. We provided 6-month bank statements and the application for what the New York lender called a "new wave of small business capital." After underwriting, the preapproval was reduced to $15,495. Pay-back in 90 days was $22,622. Our checking account would be debited $369 per day for 21 days each month.
With fees of $1,158, the actual working capital would be $14,337, recouped by the lender in 60 days with another 30 days to pay. The rate calculated to 53 percent. Within 90 days, our company would have $8,285 less in working capital than when we started.
Well-capitalized small businesses are vital to growing Alaska's economic stability, leading our local economies out of recessions and into expansions. The good news is we have the financial leverage to solve this problem. The staff of Alaska's Permanent Fund and other Alaska funds, like the Public Employees Retirement ($13 billion) and Teachers Retirement ($8 billion) systems, and other funds totaling over $90 billion, invested nationally and internationally, could ask their investment advisors to establish Alaska-based small business investment corporations to incubate small Alaska companies. We could make them an offer they can't refuse.
Leveraging our public fortune makes sense. Other large investment funds apply muscle to achieve their objectives. California's Cal PERS just greenmailed Rio Tinto out of its investment in the Pebble prospect. On the other hand, Texas invests half their Texas Education Fund in Texas and half of that in Texas real estate. Which state has the strongest small businesses and economy in America today? It's no contest.
In the 1970's Jim Crawford served on the committee which structured the management and investment policy of the Alaska Permanent Fund. He is a licensed real estate broker and his family has been in the Alaska banking and real estate businesses since 1949.
By JIM CRAWFORD