Permanent fund board has tough, but appreciated job

Posted: Sunday, November 10, 2002

The Kenai Peninsula this week hosts a regular meeting of the Alaska Permanent Fund Corp.'s six-member board of trustees. The meeting, scheduled for Wednesday and Thursday at the Best Western King Salmon Motel in Soldotna, provides a catalyst for reflection on the importance of the permanent fund to Alaska and Alaskans.

Did you know, for example, the permanent fund is among the 100 largest investment funds in the world? Did you know that, in the United States, it is larger than any single endowment fund, private foundation or union pension trust? Did you know it is one of the largest lenders to the federal government in the entire country?

As of Thursday, the fund's balance stood at $22,851,900,000 -- that's more than $22.8 billion, in case you lost your place with all those commas and zeroes. Not bad since the fund's first deposit of $734,000 in 1977.

Thirty-five percent of the fund is invested in U.S. bonds, 3 percent in non-U.S. bonds, 36 percent in U.S. stocks, 16 percent in non-U.S. stocks; 10 percent in real estate and 1 percent in Alaska certificates of deposit.

With the stock market's tumultuous performance of late and recent Wall Street scandals, one might wonder if the fund's large stock portfolio is a bit too risky.

Here's how fund officials answer that concern: Since the permanent fund began investing in the stock market in 1983, its average annual rate of return from stock holdings has been more than 14.8 percent in U.S. stocks and 8.2 percent in international stocks. In fact, stocks have been the fund's best-performing asset. The board of trustees has taken the position the fund should be a long-term investor in the stock market.

"The reason for this is that the long-term trend of stock prices is upward -- stocks advance in six years out of every 10, 72 percent of all five-year periods and 77 percent of all 10-year periods. So, being out of the stock market entails a real risk of 'missing the boat,'" according to the permanent fund corporation's Web site.

Although corporate scandals may seem far removed from Alaska, they should matter to Alaskans. That's because, as of June 30, the fund owns more than $12 billion in individual shares of 2,936 companies in 44 countries, including $8 billion in 1,867 companies with headquarters in the United States.

To protect Alaskans' interests, the fund's board of trustees has become increasingly active in areas of corporate governance, supporting and seeking reforms that hold companies in which the fund invests to high standards of accountability.

The fund's management philosophy is conservative. The fund is managed, first, to protect the principal and, second, to produce income.

While elected officials often are portrayed as mismanaging the public's money by spending every dime, the permanent fund is proof that's just not true.

"Since the construction of the trans-Alaska pipeline, Alaskans have saved nearly 13 percent of the $55 billion received in the state oil revenues," according to information about the fund. "Not only is Alaska one of the few government entities with a public savings account, it is the only one that pays dividends each year to all residents."

There's no doubt that Alaskans are wealthier because former Gov. Jay Hammond, the Ninth Alaska Legislature and voters agreed to create the permanent fund.

One part of the fund's legacy, of course, is the dividend program, but it's not the only or even the most important offshoot of the fund. While dividend checks have become Alaskans' sacred cows, it's important to remember the fund's intended purposes, as outlined in state law:

1. To provide a means of conserving a portion of the state's revenue from mineral resources to benefit all generations of Alaskans;

2. To maintain the safety of the fund's principal, while maximizing its return;

3. To be a savings device managed to allow maximum use of disposable income for purposes designated by law.

These may be rocky times on Wall Street, but Alaskans should appreciate the steady course that's been charted to protect the permanent fund. The permanent fund's board of trustees may well have the toughest job in Alaska, since all Alaskans have a vested interest in how the fund is managed.

We welcome the fund's trustees to Soldotna this week and congratulate and thank them on a job well done.

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