So far, so good: Permanent fund doing well this year

Posted: Sunday, May 02, 2010

The Alaska Permanent Fund Corp. is having a good year so far, experiencing a nice rebound from the meltdown in financial markets in 2008 and early 2009.

The fund closed out its most recent quarter March 31 with a value of $36.09 billion and a return on investments for the first three months of its fiscal year of 17.6 percent.

As of April 27, the year-to-date return had increased to 18.7 percent because of continued improvement in financial markets. The permanent fund works on a July 1 to June 30 fiscal year.

One significant development is that the fund's cash earnings, on which the annual permanent fund dividend are based, are strong enough for a full payout of the amount indicated in the five-year average of earnings used to determine the dividend.

Mike Burns, executive director of the fund, said there were concerns earlier that the value of the fund would be so low as to fall afoul of a requirement in state law that no more than 50 percent of the permanent fund earnings reserve is paid out in the annual dividend.

The earnings reserve is currently at $1.553 billion. The fund's overall value is $36 billion.

"We now expect to be able to pay the full formula dividend in the fall," Burns said.

The amount of the dividend won't be determined by the fund's board of trustees until September, but it is expected to be lower than in recent years because the five-year averaging will include recent years in which suffered losses.

Burns also said this will be the first year in which the fund will make no inflation-proofing payment of earnings into the fund's principle. That's because of the way the formula set out in state statutes for determining the annual inflation-proofing payment works, and because inflation has been very low.

Money that might have been transferred into the fund's principle will instead remain in the earnings reserve account.

The key difference between the principle and the earnings reserve is that the former cannot be spent in state appropriations through a constitutional requirement, while the earnings reserve can be appropriated.

The third quarter itself wasn't as strong for the fund as the first two quarters, with a 3 percent return. The strong stock market rally of 2009 extended into January, but fell off as markets reacted to China's economic policy changes and reports of year-end earnings and bank restrictions, according to a March 31 written release.

The crisis in Greece added to downward pressure before markets turned around in mid-February and gained strength, fund officials said.

Domestic stocks held in the fund's investment portfolio saw the strongest gains at 6.1 percent for the third quarter and 30.6 percent for the first three quarters. Foreign stocks were up 1.4 percent for the third quarter and 27.1 percent year to date.

Real estate investments, which have been depressed, showed a 3.9 percent return for the third quarter and 3 percent for the year to date.

Bonds also had positive returns, with the U.S. bond portfolio up 1.9 percent and non-U.S. portfolio up 1.5 percent for third quarter and gains of 8.6 percent and 5.1 percent for the first three quarters of the fiscal year.

Tim Bradner can be reached at tim.bradner@alaskajournal.com.



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