Portfolio diversity eases permanent fund slide

Posted: Thursday, April 26, 2001

ANCHORAGE (AP) -- The Alaska Permanent Fund appears headed for an earnings loss for the first time since its managers were allowed to invest in the stock market in 1983.

The state's oil-wealth savings account has been earning more than 13 percent per year for the past five years.

But state Revenue Commissioner Wilson Condon said it was running into what everyone knew eventually could happen -- a bad year.

From the early 1980s until last year, Wall Street saw the greatest and most sustained bull market in its history. The Alaska Permanent Fund, with its billions of dollars to invest, went along for a rich ride. But a bear market began to set in last summer. That caused some drastic losses in stocks, 401(k) retirement accounts and the Alaska Permanent Fund.

''We're going backward,'' fund spokesperson Jim Kelly said. ''But this is after leaping forward for many, many years.''

The fund's total value through Friday was down 3.21 percent for the fiscal year beginning July 1, or more than $1 billion.

Unless things change dramatically over the next nine weeks, the $25.9 billion fund either will finish at a loss or it will finish far short of its average gain of 11.37 percent over the 17 years it has invested in stocks.

Things could be worse.

The permanent fund board takes a diversified investing approach.

About half the fund's money is invested in stocks, with another 40 percent going to bonds and 10 percent into real estate.

While the fund's domestic stock holdings have dropped 12.3 percent on the year, domestic bonds were up 10.4 percent and real estate was up 12.8 percent.

''Really, it's the bonds and the real estate that have saved our butt,'' Kelly said.

The permanent fund dividend probably will be down slightly from last year's record payment of $1,964, Condon said.

Despite all that, the fund's overall return looks fairly good when compared with other investment benchmarks.

For the fiscal year through Friday, the widely watched Standard & Poor's index of the 500 biggest companies was down 14.5 percent, and the technology heavy Nasdaq was down 45.4 percent.

Robert Storer, the fund's executive director, said some Outside public savings accounts like pension funds are down more than 6 percent compared with the permanent fund's negative 3.21 percent.

''I think we're faring very well,'' Storer said. ''The permanent fund never got caught up in the tech investing, the dot-COMs.

''Sure, we've been down but we've not suffered to the magnitude that others have because of the more conservative, traditional-type investing approach that we've had.''

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