Permanent Fund trustees hear of fund's rebound

Posted: Wednesday, December 01, 2010

The Alaska Permanent Fund just finished a strong quarter, and is on its way from rebounding from declines earlier this year and even the declines of the last few years.

Klas Stolpe / Juneau Empire
Klas Stolpe / Juneau Empire

In September, the S&P 500, a widely used measure of stock values, had its best quarter since 1939, said Michael O'Leary, an investment consultant to the fund's Board of Trustees.

"It was an absolutely marvelous quarter," O'Leary, said. "It almost undid the harm that was done in the June quarter," he said.

The board began meeting in Juneau Tuesday for a two-day review of the $37 billion fund's returns and policies.

It heard a report on the fund's returns and the economy from O'Leary, a vice-president with Callan Associates, an investment advisor to the fund.

O'Leary reported that not only was the fund rebounding strongly, but that the economy was showing signs of recovery as well.

It has been slower to rebound from the recession in the first year than the previous seven recessions, but none was as deep as this one, he said.

Important economic sectors, such as residential and commercial construction, government and autos have been particularly slow to rebound he said.

"All of these things are largely explained by the magnitude of the recession," he said. Some bright spots include declining business inventories and new investments in equipment, which may result in future economic growth.

While Alaska has not been hit nearly as hard as the rest of the nation, more than half of the fund's investments are linked to how well companies do. The funds earnings provide the money from which Permanent Fund Dividends are paid. This year's dividend, based on a rolling five-year average of profits, was $1,281.

So far this year the total fund is up 11.4 percent, helped by the strong September O'Leary mentioned. The S&P 500 added 8.9 percent in that quarter alone, he said.

The permanent fund did even better overseas, he said, helped out by a new emphasis on hot emerging markets.

Bonds have lagged a bit recently, he said, but over several years are in the unusual position of outperforming stocks.

The corporation's in-house bond investment team, headed by Jim Parise, received special praise for its returns, especially for its management of the TIPS, or Treasury Inflation-Protected Securities, portfolio, which outperformed competitors at lower cost to the fund.

APFC Chief Investment Officer Jeff Scott said the overall goal of the diversified fund is to produce a real return, meaning above inflation, of 5 percent. And to do so with less volatility and without losing capital.

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

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