Permanent Fund value hits $64B at fiscal year midpoint

Monday was a good news-bad news kind of day for Alaska Permanent Fund managers.

While the Alaska Permanent Fund Corp. reported strong returns of 8.45 percent and a total fund value of $64 billion in the first half of the 2018 fiscal year on Monday, domestic markets were also down sharply for the second consecutive trading day.

The Dow Jones Industrial Average closed Monday at 24,345, down more than 7 percent from the start of Friday trading.

However, from July 1, 2017, to Jan. 1, the public equities portion of the fund's investments produced an 11.9 percent return and outperformed the corporation's investment benchmark. Roughly $28 billion, or 44 percent of the fund's total assets are allocated to public equities, according to the latest APFC financial report.

The $64 billion highlighted in the report comprised $48.7 billion in the principal portion of the fund and $15.3 billion in the earnings reserve income account.

CEO Angela Rodell said in a release that she was particularly "pleased to see the quality and diversity of the portfolio's investment returns across all asset classes. Double-digit performance returns have been achieved not only in public equities, but in APFC's private equity and infrastructure holdings as well."

The private equity investments totaling $7.6 billion generated 13.9 percent returns in the first six months of fiscal 2018. Infrastructure and private credit allocations of $3.5 billion netted a 12.4 percent return for the period.

Fixed-income investments totaling $13.6 billion as of Dec. 31 generated a 2.6 percent return, the smallest performance return among the fund's major asset classes, according to the performance report.

Overall, the 8.45 percent six-month return surpassed the corporation's blended performance benchmark by nearly 1.3 percent and outperformed the APFC Board of Trustees return objective of inflation plus 5 percent by 3.1 percent.

As of Friday, the Permanent Fund had an unaudited value of $65.2 billion.

[Alaska politicians could use the Permanent Fund to fix the deficit. But will that put PFDs at risk?]

The Permanent Fund has more than doubled in overall asset value since ending the 2009 fiscal year at $29.9 billion following the market crash that spurred the Great Recession in the Lower 48.

The Permanent Fund principal is protected from being spent by the amendment to the Alaska Constitution that established the Fund. Spending from the Earnings Reserve, however, requires a simple majority vote from both bodies of the state Legislature.

To date, the only spending from the earnings reserve has been to pay out annual Permanent Fund dividends to residents based on a percentage of the fund's previous five-year performance.

Gov. Bill Walker and House and Senate leaders have pushed to implement a percent of market value, or POMV, appropriation structure from the earnings reserve to pay down up to nearly $2 billion of the state's ongoing budget deficits in excess of $2.5 billion.

While the House and Senate both passed similar versions of the governor's POMV legislation last session with annual draws in the 5 percent range, contingencies linked to the bill on how the Democrat-led House and Republican-led Senate want to close the rest of the budget gap have stalled reconciliation to this point. Both versions of the legislation would use a portion of the POMV draw to continue paying dividends, but likely at a reduced rate from the current formula.

The APFC board of trustees has long supported a sustainable POMV draw to provide stability for the Fund and its managers.

With the state's traditional savings accounts dwindling, legislators will likely be forced to pull from the earnings reserve– via a POMV or an ad-hoc appropriation — within the next two state budget cycles.