Permanent fund takes hit in early '08

Posted: Thursday, May 29, 2008

The Alaska Permanent Fund had a poor start to the year and declined 4.5 percent, according to a review of the first quarter.

This year's first quarter was a disastrous one for stocks, however.

"It was the worst quarter in over 20 years," said Melody Bryant, stock investment manager for the Alaska Permanent Fund Corp.

The fund's $10 billion stock portfolio lost nearly 10 percent of its value in the first quarter, with another $10 billion in global and non-U.S. stocks doing nearly as poorly, the fund's Board of Trustees were told Wednesday in Anchorage.

"It was the scariest quarter in my professional life," said Michael O'Leary, a longtime adviser to the trustees with the investment firm Callan Associates Inc.

Fortunately for Alaska, the $39 billion permanent fund is invested in more than just stocks.

Many of the fund's other investments did just what investing theory says often happens: When stocks go down, bonds go up.

As it was, the permanent fund's more successful investments in bonds, especially foreign bonds, meant there was only a 4.5 percent decline of the total fund during the quarter, fund managers said.

The overall stock market has been reflecting a decline in the total U.S. economy, Bryant said.

"If we're not in a recession, we're very close to being in a recession," she said.

Bryant, who started with the fund in January, said her experience so far was reminding her of the curse "may you live in interesting times."

"These have been interesting, and volatile, times," she said.

The diversification of the permanent fund's investment portfolio helped it weather the downturn fairly well, she said.

Since the quarter ended, the fund has data from the month of April as well, which shows a marked improvement, Bryant said.

She cautioned not to make too much of a single month's results, however.

"One month does not a trend make," she said.

In April the permanent fund was up by more than $1 billion, with much of that in the stocks that had declined earlier in the year.

O'Leary said the key event of the quarter was when the investment firm Bear Stearns collapsed and had to be bailed out by competitor JP Morgan, with the backing of federal officials.

The Bear Stearns action was crucial to "backstop" the financial market problems and keep the crisis from spreading, he said.

Today, in other permanent fund corporation business, the trustees are expected to look at hiring a consulting firm to study the economics of moving the corporation's headquarters from Juneau to Anchorage.

• Contact reporter Pat Forgey at 523-2250 or e-mail

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