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Alaska Permanent Fund eyes another investment horizon — its own backyard

  • Author: Alex DeMarban
  • Updated: October 1, 2018
  • Published September 30, 2018

The $65 billion Alaska Permanent Fund Corp. invests in facilities around the world, from airports, to buildings to deep-water ports.

Now, it's targeting another investment opportunity: Alaska.

The fund's board of trustees last week approved a plan calling for investments in Alaska projects and businesses.

The Permanent Fund would initially allocate up to $200 million for the program, with additional money sought from other investors to strengthen the program and spread risk.

The fund will look for a fund manager to run the effort, dubbed the "emerging manager program." The goal is a January 2019 start.

Portions of the fund would be invested into various projects or business opportunities in Alaska, but only if the potential risk and returns are similar to investment opportunities outside Alaska, said Craig Richards, selected Thursday to chair the fund's board of trustees.

An example of a possible investment could be, say, a tank farm at an airport, he said.

The fund's former chief investment officer, Russell Read, led the conversation earlier this year about how the giant Alaska fund, seeded with revenue from oil production, could better meet the mandate of a law calling for in-state investment, Richards said. (The agency announced Friday that it selected Marcus Frampton, who joined the fund in 2012, as its new chief investment officer.)

The Permanent Fund owns one facility in Alaska, the three-story building in Juneau housing the fund.

Richards said Permanent Fund officials, while considering the in-state investment strategy, never discussed any investment in the $43 billion Alaska LNG project.

That project, led by the state, is designed to export North Slope natural gas. It's seeking investors and is strongly supported by Gov. Bill Walker. Walker appointed Richards, his former attorney general, to the Permanent Fund board in 2017.

Richards said the scope of the LNG project is so massive that the relatively small amount of money that might be available to support the project from the in-state fund — whether it's $200 million or $20 million — would be "non-material," Richards said.

"Anything is possible, but when you're talking about Alaska LNG, $20 million doesn't even pay the legal bills for the year," he said.

Permanent Fund investments into state projects or ventures could have important multiplier effects if done properly, benefiting the Alaska economy while helping grow the fund, said Ed King, of King Economics Group in Juneau.

He said the investments should be relatively small and carefully vetted by third parties.

"It can make sense, but you have to have a lot of controls to make sure it doesn't get out of hand," he said.

The Permanent Fund said in a statement Thursday that its newly amended in-state investment policy includes safeguards, like seeking participation from other institutional investors. Those outside funding partners can help review Alaska projects, making sure the investments will adequately pay off.

Bill Moran, whom Richards replaces as chair, said in the statement that the Permanent Fund has achieved strong results. In fiscal year 2018, the investments returned 10.74 percent, in the top third compared to other large endowments and foundations.

"The fund has now grown to a point that we need to formalize an approach to the Alaskan economy," Moran said in the statement.

New sources of capital are important in developing economies like Alaska's, and in-state investments can help bring in additional funds from banks and other investors, said Bill Popp, president of Anchorage Economic Development Corp.

He said safeguards will be key to ensure investments are carefully made.

"It will be important to see the details of how they plan to deploy that money," said Popp.

Additional goals and details will be firmed up after a fund manager is selected, said Paulyn Swanson, Permanent Fund spokeswoman.

The board at its annual meeting Thursday also set a goal to increase the Permanent Fund assets managed by Alaska-based investment firms, to 5 percent of the fund's value by 2023, said Richards.

Today, 1.4 percent of the fund, less than $1 billion, is managed by firms based in Alaska, he said. They are McKinley Capital Management and Alaska Permanent Capital Management, both based in Anchorage.

The goal of that effort is to develop additional fund managers from Alaska, and to attract some of the existing managers now working outside the state, he said.