The Alaska Permanent Fund Corporation took a $1.5 billion hit when American stock markets plunged last week, but fund managers said Wednesday that results of a recent stress test show the $64 billion fund is well-armored against even a severe stock market crash.
On Wednesday, the corporation’s Board of Trustees began a two-day quarterly meeting in Juneau and heard an update of the fund’s regular stress test and portfolio risk assessment.
According to the results of that assessment, a severe stock market crash — in this hypothetical, something that cost American investors 25 percent of the value of their stocks — would cost the fund 11 percent of its value.
“That would certainly be an event for the fund,” said Russell Read, chief investment officer of the fund, but the fund would fare better than an index of the entire market.
Early this month, American markets suffered an abrupt 6 percent decline. The Dow Jones Industrial Average, for example, dropped almost 3,000 points between Jan. 26 and Feb. 8.
After that, Read said, fund managers shifted their belief that stocks would continue to grow without volatility or inflation, something he characterized as “Goldilocks” — in a perfect spot, neither hot nor cold.
Now, Read said, things are “changing to growth with volitility and inflation.”
That’s not necessarily a bad thing, he said, but “not as good as we had before.”
According to the risk analysis reported to the corporation, there is even some upside for the fund under certain conditions. The fund’s portfolio — which includes real estate and other real assets — are less vulnerable to inflation than stocks and bonds alone. The fund also would do fare better than its contemporaries if U.S. or European interest rates rise, something that has become more likely in recent weeks.
The Board of Trustees meeting will continue through Thursday.
• Contact reporter James Brooks at james.k.brooks@juneauempire.com or call 523-2258.