Permanent Fund returns 1.24% in Q1

Fluctuating stock markets led the $65 billion Permanent Fund to return 1.24 percent during the first quarter of the 2020 state fiscal year, according to results published Friday by the Alaska Permanent Fund Corp.

The fund finished the quarter Sept. 30 with a market value of $64.1 billion and had an unaudited value of $65.6 billion as of Oct. 31, according to the APFC.

Broken down, the $64.1 billion included $47.9 billion in principal portion of the fund and $16.2 billion in the Earnings Reserve Account, which holds the portion of the fund that is available for spending by the Legislature.

However, the Earnings Reserve total includes more than $7.7 billion that is already committed to the state’s General Fund for dividends and government services plus a $4.6 billion transfer to the corpus of the fund to protect the real value of the principal against inflation for years to come.

APFC Chief Investment Officer Marcus Frampton noted in a formal statement that domestic stock returns were middling during the quarter while global stocks generally declined slightly. Stocks make up about 40 percent of the fund’s overall portfolio.

The Dow Jones Industrial average lost 0.54 percent during the quarter, while the S&P 500 gained 1.7 percent.

“Beneath the surface and belying the positive domestic quarterly returns was significant volatility and evolving investor views on topics ranging from international trade relations, (the) U.S. political landscape, and global central bank interest rate policy,” Frampton said, adding that the fund’s growing private equity investments help insulate it from short-term disruptions in stock performance.

“In the context of turbulent markets and a constantly changing landscape, I am pleased with this performance and believe that the portfolio is well-positioned to outperform going forward.”

The 1.24 percent gain beat the corporation’s passive return benchmark of 0.81 percent but fell below the APFC Board of Trustees strategic return objective of 1.46 percent for the quarter.

It translated into statutory net income of approximately $1 billion into the Earnings Reserve Account, according to the APFC. The State of Alaska will draw about $2.9 billion from the fund during the 2020 fiscal year for dividends and services based on the annual 5.25 percent of market value, or POMV, draw approved by the Legislature in 2018.

APFC adviser firm Callan and Associates projects the fund will achieve an average annual return of 7 percent over the next 10 years, which is in line with its historical performance.

As for other segments of the fund’s portfolio, $15.9 billion of fixed income investments generated a 2.51 percent quarterly return; the $9 billion of private equity netted 4.22 percent; and $3.9 billion in real estate holdings lost 0.62 percent.

Elwood Brehmer can be reached at [email protected].