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Permanent Fund trustees look back on stellar year

Posted: October 2, 2011 - 12:08am
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Michael O'Leary, Executive Vice President of Callan Associates Inc., speaks to the Alaska Permanent Fund Corporation board during their meeting in Juneau on Friday.  Michael Penn / Juneau Empire
Michael Penn / Juneau Empire
Michael O'Leary, Executive Vice President of Callan Associates Inc., speaks to the Alaska Permanent Fund Corporation board during their meeting in Juneau on Friday.

The Alaska Permanent Fund managers met in Juneau last week to plan for the year ahead and review the remarkable 2011 fiscal year that just concluded on June. 30.

“The only bad thing about fiscal 2011 is that it is over,” said Michael O’Leary, and investment advisor to the board with the consulting firm Callan Associates.

The fund gained 20.6 percent during the year, well above its return objective of 8.6 percent.

The funds’ earnings for the year had been announced earlier, and are already calculated into the multi-year earnings average from which this year’s $1,174 dividend payment was based.

Among the actions the trustees took Thursday in Juneau, where they hosted an economic forum, was to approve a budget for the year and adopt their new strategic plan.

A key part of the quarterly meeting was reviewing results for the last year and quarter.

While the year had been highly profitable for the fund, O’Leary noted that the fund’s strong returns were still below the fund’s benchmarks, which are what are used to compare it to other funds. Two different benchmarks used by fund managers show the Alaska Permanent Fund’s returns to be about one and two percent below the benchmarks.

During the year stocks did best, with some specialized stock funds blowing past the benchmark levels.

Leading the returns was Eagle Asset Management, a small cap growth manager, with returns of more than 51 percent for the year, above even its special benchmark of 43 percent.

Numerous other managers of stock funds had returns above 30 percent, and even above 40 percent for the year.

The Alaska Permanent Fund Corp.’s managers recently limited the total number of small-cap managers they used, keeping only the best of the best, which O’Leary credited with some of the year’s success.

“It’s a complement to the staff for picking out the strong managers, and continuing them with the program,” O’Leary said.

Bringing down the Permanent Fund’s average, he said, was its Opportunity Pool investments, a group of more unusual investment strategies such as distressed debt and high yield debt in emerging markets.

“That’s what caused the total fund to be under its target,” he said.

The Permanent Fund adopted a budget of nearly $120 million for next year, the vast majority of it spent on investment management fees.

The board last year underestimated the amount that it would spend on management fees, which are mostly based on a percentage of assets under management. As the fund grew rapidly, so did the management fees, and the Legislature had to approve a supplemental appropriation to cover the cost.

The budget for next year is $11.5 million to run the corporation, and $108 in management fees, up $13 million from last year.

Laura Achee, the corporation’s legislative liaison, said she didn’t expect difficulty getting the amount approved.

“We are one of the profit centers for the state,” she said.

Also in Juneau the trustees selected a chair and vice-chair for the next year, re-electing Bill Moran of Ketchikan and Steve Rieger of Anchorage to those positions.

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

• Editor's note: This article has been updated to reflect the correct spelling of Steve Rieger's name.

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