Legislators want more details on Permanent Fund investment changes
Published Sunday, August 16, 2009
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Stumble It!FAIRBANKS — Several legislators still irritated by an apparent lack of communication concerning the Permanent Fund Corporation’s new investment strategy peppered senior managers with questions at a hearing Friday.
The members of the Legislative Budget and Audit Committee, charged with oversight of the Permanent Fund Corporation, sought a better understanding of what the investment changes will mean for the $32 billion fund, which generates profits Alaskans receive as annual dividends.
But after a presentation by the corporation and some questions, Anchorage representatives Mike Doogan, a Democrat, and Mike Hawker, a Republican, had even more questions.
Fund CEO Mike Burns and new Chief Investment Officer Jeff Scott said the new strategy groups investments not by type, but by risk characteristics. Some investments have names that infer risk levels but under different market scenarios might not behave as expected.
“It’s important for us to make sure we are all visible to the risk we are taking,” Scott said.
The fund’s board chairman Steve Frank explained it this way in a June 20 letter to Alaskans:
“At times, corporate bonds act more like stocks than they act like U.S. Treasuries. This makes sense when you consider that the companies that issue these corporate bonds are the same companies traded in the stock markets. Grouping corporate bonds alongside stocks allows the trustees and staff to better evaluate the Fund’s exposure to public companies.”
In part, the unprecedented economic collapse of 2008 drove a need to re-evaluate risks, as multiple sectors of the economy and markets slumped together.
The changes also include a new category of investment called “real return mandates,” or three to four mini-funds managed as portfolios by outside firms. The corporation is adding a cash category to encompass highly liquid investments that could fund liabilities, including dividends, on short notice.
Several lawmakers were left wondering just what the managers hoped to gain.
“At one level they’re trying to tell us they haven’t changed their investment components; they’ve just changed the way they’re presented to the public,” Hawker said after the hearing. “But at the other end, they’re telling us they’re changing ... to reduce risk. It seems the Permanent Fund has found the Holy Grail of investing, lowering the risk and increasing our returns.
“We’re doing our due diligence to really evaluate what they’ve done so we’ll be able to make an intelligent decision on whether it was the right thing to do for the state.”
Hawker said he learned of the changes by reading an article in the Juneau Empire. Questioning fund directors, he was told the changes were not a significant alternation. Next thing he knew, Hawker was reading an article in Pensions and Investments titled, “Alaska blazes new trail in risk-based investing.”
“It’s inconsistent with even the Permanent Fund’s presentation to us,” Hawker said. “The Permanent Fund is the state’s savings account. We take it very seriously.”
LB&A Chairman Sen. Kevin Meyer, R-Anchorage, asked Burns and Scott to prepare for an extended report at the committee’s September meeting.
Doogan said he hopes that session nets genuine answers.
“I’ve still got the same questions, maybe a few more, than when I sat down there,” Doogan said. “I think we’re going to be at this for a while.”
He said he’s conservative when it comes to Permanent Fund investment.
“My main concern is not that we out-perform every other institutional investor on the planet,” he said. “My main concern is that we don’t lose money, first of all. That’s preservation of principal.”
Sen. Bert Stedman, R-Sitka, pushed Scott for specifics on his workdays. Constituents are concerned about the new CIO’s schedule, he said.
Scott, whose family remains in Seattle, said he spends 50 percent of the work week at his Juneau office, and 20 to 30 percent traveling the Lower 48 on the corporation’s behalf, visiting portfolio managers. The rest of the time he works from Seattle, where he is trying to sell a home in order to relocate his family to Alaska, he said.
Sen. Linda Menard, R-Wasilla, offered to cut to the chase.
“We got terribly criticized because our governor did not live in Juneau,” she told Scott. “We want you to invest in the state.”
Former Gov. Sarah Palin worked most of the year from Anchorage, near her family’s home in Wasilla, instead of from the state’s capitol, Juneau.
Community Discussion
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Maybe it's time for a lump sum pay out. Then the state can do what ever it wants to with the money in the years to come.
Menard hit it!! Alaska got taken for a ride.....gov's pay plus per diem almost daily for the ex gov, and what did we get in return? TAKEN accountability was never in the ex gov's reign, we better get our ducks in order and people to work their job and not be "you know how some people milk it!"
When legislators even mention The Permanent Fund it's time to call out the troops, muskets at the ready. When those spendthrifts thing "Permanent Fund" they automatically start planning raids!
Senator Menard was spot on point. Invest Alaska's Permanent Fund in Alaska, instead of the flim-flam stock market schemes.
The plus Eleven Billion dollar LOSS last year in the value of the Alaska Permanent Fund ought to be a wake up call for everyone.
When you invest in Alaska, you not only get the principle and interest back to continue the growth of the fund, But you also get the increased economic benefit of sustainable growth in business and jobs in Alaska.
We should use the PF to invest in a gas pipeline so Alaska can own and operate our cheap, clean energy, which would provide jobs and clean energy to Alaskans for years to come.
Nice idea, doris. Could've done the same thing with the refineries and we wouldn't have Flint Hills bleeding us white. Run the energy production and distribution like a co-op, not a for-profit. Trouble is, the free-market zealots would manage to turn the whole works over to some corporation even if the state of AK paid for the whole thing and we'd be screwed all over again.
Actually, that magazine Pension & Investments that is mentioned, and the online version, are pretty good sources of information. Here's the URL: www.pionline.com . when you get there, type in Alaska and a bunch of good stuff will come up.
"The plus Eleven Billion dollar LOSS last year in the value of the Alaska Permanent Fund ought to be a wake up call for everyone."
It was. That is why the PFD managers are changing the way they classify things so they have a better idea of where the risk is. I only know a little about the market, but what Frank says makes sense. Some magazine may call it 'A bold new path' but they are just trying to sell copies and it just sounds like common sense to me. If something behaves like a stock, treat it like a stock even if the certificate says 'bond' on it. Maybe common sense is a bold new path in the market. Before the senators spend alot of this guys time questioning him about how he does his job they should get a briefing regarding how the stock market functions so they can understand what he's telling them.
rfn - "When legislators even mention The Permanent Fund it's time to call out the troops, muskets at the ready. When those spendthrifts thing "Permanent Fund" they automatically start planning raids!"
Can we please NOT threaten to bring out the muskets whenever and wherever an apparent conflict exists? This militancy, whether real or implied, helps no one and creates instead a climate of fear, and forces people to take sides on issues that should not divide them.
And let me ask you - why is it that accepting, nay, EXPECTING a Permanant Fund check of a certain size - or of any size - is NOT a socialist expectation, but government-sponsored health care IS?
It is well within the realm of American government to not just determine that there is oversight but to qualify it to the best of its paid for ability. Stupid is as bad as corruption. I am a happy Alaskan to read that we have legislators willing to do the nonglamorous labor of sorting through the verbiage that these kinds of funds are experts at. In the process they will learn. It is my hope that they will share their learning process with us so we learn as well.
On a side but relevant note: what happened with that story last winter about the investment that the governor and the new Fund manager moved a couple of billion dollars into and it promptly tanked?
Did oversight fail? If so did we learn something? Did we have a news organization willing to take up the full scope of what happened? Or do we continue to maybe or maybe not learn not just by our mistakes but by mistake?
Our Permanent Fund is like all funds that contain large amounts of investment capital, targets of plunder aimed at by all manner of corrupt people and organizations. They lie awake at night scheming how to get to that money. They thrive on innocence, ignorance, and stupidity.
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