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Alaska Permanent Fund channels investments into companies, infrastructure

  • Author: Alex DeMarban
  • Updated: December 2, 2017
  • Published May 21, 2017

The Alaska Permanent Fund continues to pursue what has proven a winning strategy so far, directly investing in companies in hopes of generating big returns as they grow.

The $59 billion fund also hopes to increasingly capitalize on U.S. infrastructure investments, an effort that was already underway but is getting closer attention with President Donald Trump hoping to secure $1 trillion from Congress to upgrade the nation's roads, bridges, airports and other hardware.

The fund has invested $1.8 billion in private infrastructure around the world. Only 23 percent of that, or $415 million, is invested in the United States, primarily in pipelines, but in other areas such as cell towers and port facilities, Angela Rodell, the fund's chief executive, said Friday.

The fund had already been planning to increase investments in the United States while reducing its emphasis on infrastructure in other countries, she said. But fund managers are watching developments in Washington, D.C., in case opportunities spring up as Trump emphasizes increased spending, she said.

The corporation is looking for investments that aren't too risky and generate healthy revenue. Potentially fitting that profile are such items as toll roads or power plants, Rodell said.

As to the construction of a wall along the U.S. border with Mexico, one of Trump's continued promises, the benefit of investment isn't obvious, Rodell said.

"As opposed to a toll road, a power plant or an airport, it is less clear what the revenue model on the border wall would be," she said.

Like many other large investors, the fund has already seen some benefit since the Trump was elected on Nov. 8. Expectations that he will ease regulations and corporate tax have sent stocks soaring, helping the fund grow about $4 billion in value since the election, or about 7.5 percent.

That's about half the growth of some major stock indexes, such as the Dow Jones Industrial Average, consisting of stocks of 30 major companies. But the portfolio is broadly diversified beyond just stocks, with investments including those income-generating stakes in say, ports, that can return stable value despite the stock market's highs and lows.

The fund has returned an average of 7 percent a year over the last 20 years. It returned 5.1 percent over the last 10 years, a period that includes lost value associated with the Great Recession when markets crashed. Growth over the last five years is closer to the long-term average, almost 8 percent annually.

With state revenues devastated by low oil prices in recent years, lawmakers are looking to restructure the fund to help pay for government. Senate Bill 26 would do that, passed by the Senate in March and now in a House-Senate conference committee seeking compromise before a vote in the House.

The measure would generate an estimated $2.5 billion in its first fiscal year. One-third of the income generated would provide Alaskans dividends of more than $1,000 in the first year. The rest of the income, more than $1.5 billion, would help fund state government.

To keep the Permanent Fund generating healthy returns, managers have continued to look for direct investments in companies, such as in biotech startups. Some have paid off handsomely.

That includes a $129 million investment in Seattle-based Juno Therapeutics, a company aiming to genetically program a patient's immune-system T cells to kill cancer cells. In early 2016, after shares of the company had risen, the Permanent Fund sold one-third of its initial stake in the company, generating $335 million in cash while still retaining more than $600 million in stock.

In recent months, the Permanent Fund has added new investments into companies. They include:

• $73 million into Premia Reinsurance, a new company focused on a specialty property and casualty insurance market and based in Bermuda.

• $20 million in HealthSun, a Medicare plan provider based in Miami. Contracted to provide the federal health insurance for residents 65 or older, the company bills itself as one of the fastest growing health plans in South Florida.

• $10 million in Ministry Brands, based in Knoxville, Tenn., and providing cloud-based software for 55,000 churches and faith-based organizations. Services include websites, online donations, financial accounting and mobile apps.

The companies are exploiting niches and new technology to deliver services, said Rodell. Ministry Brands, for example, provides services for organizations that often lack resources to do similar work themselves.

Returns from the fund's private equity portfolio and a related effort known as special opportunities have sharply outpaced the fund's overall performance, generating an average of 19 percent annually over the last five years.

"All these investments have risk," Rodell said. "We believe the returns we get will compensate for that risk."