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Permanent Fund takes an early beating

Fund's first quarter sees losses, but has rest of year to recover

Posted: November 2, 2011 - 11:13pm

Alaska’s Permanent Fund lost more than three billion dollars in the first quarter of fiscal year 2012, the Alaska Permanent Fund Corp. announced Wednesday.

That could mean a big hit for next year’s and future years' dividends, depending on whether the losses are made up during the remainder of the year.

The fund ended the quarter Sept. 30 at $37 billion, down $3.1 billion from where it had been at the start of the quarter and fiscal year on July 1.

Permanent Fund Executive Director Mike Burns stated in a release the decline in markets had been somewhat expected after big gains in the previous year, in which it had a return of 20 percent, one of the fund’s best years ever.

“Bull markets don’t last forever,” Burns said.

Dividends are calculated from a formula based on “realized” earnings after stocks or other investments are sold, not on interim market values. PFD amounts are also based on a five-year average of earnings, and other factors.

In the first quarter of the fiscal year, Burns said stocks had been the biggest losers for the quarter. Last year, they were the big winners.

Foreign stocks lost nearly 20 percent, while U.S. stocks lost more than 16 percent.

And even while the overall Permanent Fund portfolio was down 8.3 percent for the quarter, the fund’s $7.6 billion U.S. bond portfolio, mostly managed in-house, returned a positive 1.8 percent for the quarter. The much smaller foreign bond holdings did even better, earning 3.3 percent.

The Permanent Fund’s hedge fund holdings also helped hold off some of the downturn’s effects, with those investments doing much better than the market, losing only 2.7 percent.

Despite the quarter’s downturn, Burns said the Permanent Fund would not be adjusting the portfolio because of the downturn, and the Permanent Fund’s Board of Trustees doesn’t “chase returns” by trying to guess what will be the next hot market.

“Our board builds an all-weather portfolio that doesn’t change to reflect market conditions,” he said.

That may have already begun to pay off. In October the Permanent Fund began climbing again, and is currently at $38.8 billion.


This story has been changed to note that the losses this year could also affect dividends in future years.

• Contact reporter Pat Forgey at 523-2250 or at patrick.forgey@juneauempire.com

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