Representatives of the Alaska Permanent Fund appeared before the Alaska Legislature on Friday, explaining their investment strategies and defending their earnings returns.
So far this year the permanent fund has lagged the U.S. stock market, but that's to be expected given its conservative investment strategy, said Mike Burns, the fund's executive director.
The fund's Board of Trustees concerned some legislators last year when they quietly changed how the fund's investments were organized.
That new strategy is a "leading-edge risk-management model," said Board Chairman Bill Moran of Ketchikan.
Testifying before the Senate Finance Committee, the permanent fund representatives said the new strategy, designed by Chief Investment Officer Jeff Scott, organized investments by areas of risk, such as corporate risk or interest-rate risk. That's instead of more traditional allocations to stocks and bonds.
Burns said the fund's strategy was winning accolades in the national and international investment community.
"People in the business are very interested in what we're doing and think we're doing the right thing," Burns said.
That recognition is important to the permanent fund, he said.
"It's very reassuring to us and we hope it is reassuring to you," Burns said.
So far this year, Burns acknowledged the permanent fund has lagged the stock market, which he described as "being on a tear," because of its diversification with other types of investments.
The strategy, he said, is that while the permanent fund may trail more aggressive funds in up markets, they won't fall as much in down markets.
Sen. Lyman Hoffman, D-Bethel, questioned what steps the permanent fund's managers took after the fund lost $13 billion in 2008's market downturn.
"We've basically stayed the course," Burns said.
That involves sticking to its predetermined strategy. One of those actions was to rebalance back to its asset allocation model, buying more stocks after their value had declined. That included a $700 million stock purchase at what turned out to be the lowest point of the market.
The permanent fund is nearly back to $40 billion, close to its previous high.
Burns said they've also "adopted a more robust focus on risk management," to be sure the fund is protected to the largest extent possible.
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