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The Alaska Permanent Fund and Romney's Bain Capital

State investment fund has had a long relationship with Bain, but it was all post-Romney

Posted: August 8, 2012 - 12:04am

Bain Capital made Mitt Romney very wealthy, and the Alaska Permanent Fund corporation hopes the newly-prominent private equity firm will do good things for Alaska as well.

Few people outside the finance world had heard of Bain Capital in 2006, but the Alaska Permanent Fund and its investment advisors were very familiar with the company’s stellar returns.

Alaska began a profitable relationship with Bain Capital in March of 2006 with a $20 million investment in Bain Capital Fund IX, the company’s ninth multi-billion dollar investment fund.

That was after founder Mitt Romney, now the presumptive Republican presidential nominee, had left the firm.

Private equity funds such as those operated by Bain Capital generally take ownership positions directly in privately held companies, rather than buying stock in publicly traded companies.

Just how profitable that Bain Capital IX investment may wind up being isn’t being released, said Alaska Permanent Fund Corp. executive director Mike Burns.

The corporation itself doesn’t even chose the investments, instead they have two “gatekeeper” investment managers that they hire to select private equity investments.

One of those, Pathway Capital Management, identified Bain as a good investment in 2006, Burns said. Since then, Pathway has placed seven more Alaska investments with Bain funds, for a total of about $142 million, Burns said.

“They generally don’t invest in anything but the top tier groups, and we continue to invest with them,” Burns said.

While the permanent fund doesn’t provide specifics on returns from individual private equity funds, Burns said it is fair to say that the continued investments with Bain indicate they’re happy with the returns.

“We’re pleased, but we just can’t give out those numbers,” he said.

How well investments do is just one of the bits of information that’s kept secret in the private equity world. Burns said he also can’t say what Alaska’s $150 million is invested in.

“It’s kind of their intellectual property, both at the gatekeeper level and the Bain level,” he said.

How much money such investment funds have and what they are investing it in is kept secret so as to not give competitors clues as to what they are doing, Burns said.

While the Alaska Permanent Fund may provide guidance to Pathway, and HarbourVest Partners, its other private equity gatekeeper, it is more likely to be very broad, he said.

“We may tell them we want more or less venture capital,” Burns said, so as to keep the total portfolio from getting out of balance.

Under Romney, Bain has been accused of outsourcing jobs and closing unprofitable operations and laying off workers.

That’s something that companies do all the time, and is not part of the permanent fund’s investment decisions, he said.

What the permanent fund doesn’t do is sign off on individual company investments.

“That’s micromanaging, and that’s just not what we do with these funds,” Burns said.

When the Alaska Permanent Fund Board of Trustees first approved investments in private equity in 2004, that was a big step for the fund, Burns said.

The fund initially began with a very conservative bond portfolio, and it was many years before it even began buying stocks.

While there is some dispute over when Romney actually left Bain, all of the dates in question are before Alaska got involved with Bain.

Romney has said publicly that he left Bain in 1999, though some documents cited by critics are reported to show him still in nominal charge in 2002.

“That’s before we got into it,” Burns said.

One of the reasons that private equity returns are difficult to compare is that many of the investments are illiquid. Unlike publicly traded stocks, which can be sold on a stock exchange at any time, entire companies are more difficult to sell.

Such sales often require the agreement of other equity holders as well. Burns said that private equity was a good way to capitalize on the permanent fund’s long-term investment horizon.

Last year’s annual report for the permanent fund said that while private equity was expected to provide above average profits, it was still too soon to judge.

About $1.7 billion of the $41 billion Alaska Permanent Fund is invested in private equity.

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

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