Fund continues bull rush, nears $75B in value

  • The bull market continues to boost the Permanent Fund value as it nears $75 billion, or nearly a $10 billion increase over the past eight months. (Photo/Chris Hondros/Newsmakers/Getty Images/TNS)

Alaska’s Permanent Fund has continued its rapid growth into 2021 with a value quickly approaching $75 billion.

The fund had a value of nearly $74.8 billion as of Feb. 22, according to unaudited figures from the Alaska Permanent Fund Corp., which equates to growth of 4.3 percent in just the first roughly seven weeks of the year.

It ended a tumultuous first half of 2020 — that also marked the end of the 2020 state fiscal year — with a total balance of $65.3 billion for a net value increase of about $9.5 billion, or 14.5 percent, in less than eight months.

The APFC board of trustees has an annual target return of 5 percent more than inflation; over the last 10 years the fund has averaged annual returns of 8.4 percent, according to corporation figures.

Much of the growth is attributable to the fund’s $30 billion public equity, or stock, portfolio. The Dow Jones Industrial Average is similarly up more than 20 percent since June.

The particularly strong stock returns have also led to a larger Earnings Reserve Account, the subaccount of the Permanent Fund that is spendable by the Legislature and provides the roughly $3 billion annual percent of market value draw to help fund state services each year, according to CEO Angela Rodell.

The Earnings Reserve held $14.9 billion on Jan. 31, of which approximately $9 billion was uncommitted realized earnings immediately available for spending. Another nearly $3.1 billion is committed to the current 2021 fiscal year POMV draw while the remainder is accounted for as unrealized gains on invested assets, according to APFC financial statements.

As recently as early September the Earnings Reserve held just less than $6 billion in uncommitted, realized gains and $10.5 billion overall. Rodell said in an interview that the recent ballooning of the earnings reserve is largely due APFC managers attempting to maintain discipline regarding the fund’s total asset allocations.

The corporation has a target allocation for stocks to make up 37 percent of the fund’s total investments and when its stocks perform as well as they have in recent months they gradually become a larger portion of the overall fund, which pushes managers to sell a portion of those stocks — and generate income — to maintain a stock portfolio more in-line with the target allocation, according to Rodell.

“All of the benefits of the growth fall to the Earnings Reserve,” she said. “The exact reverse is also highly possible and that’s what happened in March of 2020.”

Public markets contracted sharply in the early days of the pandemic from the general uncertainty as to what the world was dealing with at the time. Then, managers pulled resources from other investment types such as bonds that were over-weighted at the time and put them into stocks.

“While this is a really great thing that’s happening right now, it’s not something that happens continually or is forecasted to continue over the next 10 years,” Rodell added.

Gov. Mike Dunleavy’s latest state budget proposal calls for drawing roughly $3.2 billion from the Earnings Reserve this year in addition to the annual POMV draw to pay for spring and fall Permanent Fund Dividend installments meant to inject cash into the state’s struggling economy.

Rodell once again told lawmakers during a Feb. 23 House Finance Committee hearing that she fully understands the desire to provide Alaskans additional cash to help the state recover from the last unprecedented year but noted that it would have long-term consequences as well.

“It reduces your market value draw every year hereafter,” she said of spending from the Earnings Reserve beyond the POMV. “You have to be thinking about how you’re going to replace this revenue or how you’re going to adjust spending as a result.

She additionally noted that APFC’s advisory firm, Callan, expects the fund’s real return — total minus inflation — to be in the 4.2 percent range over roughly the next decade. If that forecast is close to accurate it would likely mean the current 5 percent annual draw on the fund would be too large to maintain its real value.

“It does imply that if this forecast is correct you would be taking out more than you are saving and the fund would contract; it would not grow,” Rodell said in response to questions from legislators.

Some legislators who generally support the annual draw have said they are concerned a 5 percent draw is too large, though the APFC trustees for years have consistently endorsed a draw up to that level.

As it stands, the POMV accounts for roughly 70 percent of unrestricted annual state revenue.

Elwood Brehmer can be reached at [email protected].

(Editor's note: A previous version of this story incorrectly referred to the Alaska Permanent Fund Corp. advisory firm as Callan Associates. The company has changed its name to Callan.)

Updated: 
03/04/2021 - 1:34pm