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Dividend looks secure

Posted: Friday, May 28, 2010

Rising stock values are paving the way for a healthy Permanent Fund Dividend this year, despite earlier fears there wouldn't be enough money available to legally pay the full dividend.

Based on the current value of permanent fund earnings and projections for the remainder of the fiscal year, the permanent fund will likely provide nearly $812 million for dividend payments this year.

That comes out to an estimated $1,171 per dividend check for 2010, down a bit from last year's $1,305, according to Empire calculations based on likely dividend applications.

That comes despite an obscure provision in state law that some fear could prevent a full dividend from being paid. That has yet to happen in the Fund's 27-year history.

Alaska Permanent Fund Corporation Executive Director Mike Burns said market improvements have nearly eliminated that worry, and has provided more than enough realized profits to pay the full dividend.

"It looks like there's a pretty good cushion," Burns said. "We've still got a month to go (in the fiscal year) but we're well ahead of where we need to be."

Alaskans' treasured PFDs are based not on the value of the Alaska Permanent Fund, but on a five-year average of the fund's gains.

That's intended to protect the fund's base, or principal, and only pay out dividends from profits, and those profits have to be realized - not just on paper.

A second protection comes from the provision that allows only half of those profits, known as the "statutory earnings reserve," to be paid out each year. That threatened to cut tens or hundreds of millions from the amount of the dividend when markets were lower.

The Alaska Permanent Fund Corporation's Board of Trustees, meeting in Juneau this week, heard reports from staff and investment advisors.

The permanent fund is now up to about $34 billion. At the start of May it was up more than 18 percent for the year.

While its value has declined since then, Burns said it is unlikely to threaten the dividend.

"Not only do you have to have a decline, you have to realize it," Burn said. Realizing a decline would mean selling a stock, bond or property for less than the fund originally paid for it.

Fund investment managers identified for the board emerging markets and real estate as particularly profitable investments in the last quarter.

Investment manager Chris Cummins timed the Permanent Fund's investment in commercial mortgage backed securities quite well, said Jeff Scott, the Fund's chief investment officer.

The Permanent Fund identified CMBS as likely to increase in price, and invested hundreds of millions there. That investment rose to being worth more than a billion dollars, and then the fund sold much of it before it fell.

"As the market sold off, he's captured some of that return," Scott said.

"Clearly, that's been a real winner," said Michael O'Leary, with Fund advisor Callan Associates.

The entire in-house bond investment team exceeded their benchmarks and brought in better-than-expected returns, O'Leary said.

"Kudos to all involved," he said.

O'Leary also had some words of caution for the future, however.

Increases were to be expected after big declines two years ago, but proved smaller than hoped for due to lingering financial uncertainty.

And ongoing financial reform efforts could have negative effects as well.

"If anyone tells you it isn't a big deal, they don't know what they're talking about," he said.

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



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