Alaska Permanent Fund Corp. to end in-state investment program

The Alaska Permanent Fund Corp.’s board of trustees voted Wednesday to wind down its in-state investment program, citing potential conflicts with the board’s overall mission.

Through the program, established by the board in 2018, managers directed $200 million from the Permanent Fund’s $76 billion portfolio to be invested in-state. Corporation staff previously reported the in-state investments were underperforming compared to the fund’s out-of-state investments, but reiterated during the board’s quarterly meeting Wednesday that it was too early to judge the outcome of existing in-state investments.

Still, trustees voted not to add any more funds to the program after some raised concerns over its potential pitfalls, including conflicts of interest and the possibility that the program may not be in line with the board’s goal of maximizing investment returns over time.

Of the six trustees on the board, four voted in favor of a resolution to wind down the program. Only one trustee was opposed — Craig Richards — who instead favored pausing the program for “a year or two” with the possibility of restarting it if the initial investments turn out to be successful. Trustee Ellie Rubenstein, a private equity investor, abstained from the vote.

Richards is the only current trustee who also served on the board at the time the program was created in 2018. He said that because the management of in-state investments was outsourced by corporation staff to external fund managers, potential conflicts could be sidestepped. All other trustees were appointed to the board by Gov. Mike Dunleavy in the years after the program was created.

Steve Rieger, the trustee who proposed the resolution to wind down the program, said the in-state investments could give the appearance of similarity to the Alaska Industrial Development and Export Authority, or AIDEA, a state agency charged with investing in Alaska development projects that has faced criticism for its unsuccessful ventures in the past. A recent analysis found that AIDEA’s investment performance has trailed that of the Permanent Fund to the tune of billions.

The adopted resolution states that “the wisdom of expanding or continuing the program has been re-assessed. Accordingly, it is the board’s intention not to allocate additional capital to this program” while also not liquidating the investments already made through the program, which range widely and are managed by two separate firms, each allocated $100 million. The resolution goes on to state that “no additional moneys are to be committed to the Alaska In-State Emerging Manager Program.”

Ethan Schutt, chair of the board, said after the vote that there is “no change to the existing program whatsoever” and the resolution is “not a condemnation of the investments that have been made.”

But he acknowledged that because Alaska is a small and interconnected state, continued investments in the program would have made it difficult for the board to do its job, even while relying on external fund managers, because money from those investments could ultimately end up benefiting trustees or their family members through their other ventures.

“Given the small, very small, nature of our state, and our business environment, (in-state investments) can very easily touch one or more trustees … and therefore disqualify us from governance,” said Schutt.