Alaska Permanent Fund expected to have lost value over last fiscal year

As of last Thursday, the fund had dropped $5.7 billion in value from its high point on Dec. 31 of last year.
Published: Jul. 5, 2022 at 7:15 PM AKDT
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JUNEAU, Alaska (KTUU) - The Alaska Permanent Fund is expected to have lost 1-2% of its value over the fiscal year that ended on June 30, but fund managers will need to confirm those projections in late August when end-of-fiscal-year statements are compiled.

It’s a very different outlook and performance for the fund from a year ago. At that time, the fund had grown by almost 25% over the previous 12 months and was worth roughly $81 billion. Now, it’s closer to $78 billion.

Marcus Framptom, chief investment officer for the Alaska Permanent Fund Corp., called last year’s stratospheric growth “kind of an aberration.” He said portfolio managers have been anticipating a low-return environment for a while.

Inflation nationally is almost at double digits, the U.S. Federal Reserve has raised interest rates in an effort to tamp down demand, and stock markets have continued to tumble. Economists have been warning about the likelihood of a recession on the horizon.

Frampton said the fund’s managers are prepared for investing in a high inflationary environment by having a diversified portfolio, including in gold and real estate. He also noted that portfolio managers have been able to beat their benchmarks despite the fund itself losing value.

“But at the end of the day, we’re aware that our stakeholders need positive returns,” he said.

The fund had once been used to just pay for Permanent Fund dividends. More recently, it has also funded roughly two-thirds of state government, but that again has flipped back to oil paying for a majority of state services with Alaska North Slope crude at over $100 a barrel.

“It was inevitable,” said Larry Persily, a former deputy commissioner of the Alaska Department of Revenue, about the fund’s performance. “There are down years in the market, everyone knew eventually one would happen.”

As of last Thursday, the fund had dropped $5.7 billion in value from its high point on Dec. 31 of last year. Persily called that drop “substantial but not surprising” due to the weak performance of stocks and bonds.

A rules-based system set out in state statute in 2018 effectively limits a now-annual draw from the Permanent Fund for dividends and state services at 5% of the fund’s value. That draw is from a five-year average of earnings, which allows for a “smoothing effect” for any highs or lows the fund experiences in any given year.

Economists have stressed that smoothing effect means any individual year’s losses or gains should be analyzed in a five-year context, but Persily, echoing multiple statements from the Alaska Permanent Fund’s board of trustees, urged caution for policymakers who are tempted to overdraw the fund.

“Do not think in the years you make a lot of money that you can take extra money out of the fund,” he said. “You need that cushion for years like this, which are inevitable.”

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