My turn: Permanent Fund Corp. is not changing policy

Board of trustees must balance its legal responsibilities

Posted: Friday, March 24, 2006

Recently the suggestion has been made that the Alaska Permanent Fund Corp. Board of Trustees is changing its policy of openness and transparency. This is simply not true.

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The trustees have always been open and transparent regarding investment decisions and the fund's performance. Board meetings have been held around the state to allow as many Alaskans as possible to participate in the process and are broadcast over a toll-free number. Meeting minutes, monthly performance reports and financial statements are posted at http://www.apfc.org.

In 1980, the Legislature passed a statute requiring the corporation to keep confidential "the particulars of the business or affairs of a private enterprise or investor." This statute doesn't allow it to keep this information confidential, it requires it.

For most of the fund's history, the trustees have not had a lot of information that would have been deemed confidential under this statute. The majority of the fund's portfolio has been invested in stock and bond markets, where information regarding investments is, by nature, public.

This changed in 1999 when the Legislature authorized the board to invest in alternative assets, such as private equity and absolute-return strategies, and when the board made the first of these investments in 2004. The board, its consultants and advisors all believe that these alternative assets provide good return potential and increased diversification, lowering overall risk, to the fund's portfolio.

Private equity is the investment in private companies, such as start-up capital or venture capital. For example, before Google went public they sought private equity investors. A private corporation's access to funding is valuable knowledge to their competitors, and this is an example of what could be extracted from a private equity manager's proprietary information.

Absolute return strategy managers don't invest in one particular type of stock or bond as the rest of our managers do. They set a goal of an absolute return and draw from a number of strategies to achieve that return. Their strategies are confidential, and they can't risk disclosing them to their competitors.

Alternative asset managers believe that their intellectual property is their most valuable commodity. But taking on public funds as clients means that they risk having their trade secrets become public records.

Recently requests were made for information relating to the fund's alternative assets. Working with legal counsel and on behalf of the trustees, I sought to balance the board's desire to provide as much information as possible while obeying the law. The result was that some of the requested information could not legally be released.

So what can the corporation release? We can and do make public the hiring of new managers, and every month we post the amount of money they have under management and their monthly returns.

I have heard a suggestion that if under state law the board can't release these managers' proprietary information, then perhaps the permanent fund shouldn't be in alternative investments. But this is not an option for the board of trustees.

The Legislature has directed the board in statute to invest for maximum return while protecting principal. The board believes that placing a portion of the fund in alternative investments is the prudent way to achieve this goal. The Legislature has authorized the board to make these investments. And the Legislature has said that certain information will be held confidential by the corporation.

What if the Legislature were to simply remove the statute requiring that certain information be kept confidential? Public funds in some other states are required to release more information than the permanent fund. What those other states have found is that their access to better managers has become limited.

Is allowing a public fund to keep proprietary information confidential a reasonable trade for the opportunities that alternative assets provide? This board believes it is based on the Legislature's statutory direction to the fund over the years.

Moving forward, the trustees will continue to balance all of the legal responsibilities given to them: making prudent investments, protecting principal, achieving maximum return and providing information while preserving statutory confidentiality.

• Michael J. Burns is the chief executive officer of the Alaska Permanent Fund Corp.



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