The permanent fund posted a 7.3 percent quarterly loss in September, the largest three-month decline in its 26-year history, said a report by the Alaska Permanent Fund Corp.
Sharp drops in domestic and international stocks - which account for less than half the $23.1 billion fund - were partly offset by gains in the bond market, the quarterly report showed.
The fund lost 17.3 percent in its U.S. stock investments during the quarter, the worst loss since 1987. International stocks, which are a smaller share of its total stock investments, fell 19.4 percent for the quarter.
The Permanent Fund Corp. reported a 4 percent gain on bonds for the quarter. Its bond holdings make up about 44 percent of the total portfolio.
The losses are attributed to uncertainty about the U.S. economy, negative backlash from recent revelations of corporate misdeeds, and the prospects of war.
"One of the things we are seeing is a lot of volatility, big swings up and down," said Bob Bartholomew, chief operating officer for the Permanent Fund Corp.
The permanent fund's earnings reserve account, from which dividends are paid to Alaskans, showed a $137 million deficit on Sept. 30, the quarterly report showed. But that account is now at about $1.1 billion on the strength of recent gains in the fund, Bartholomew said.
The permanent fund investments have begun to rally for the first two months of this quarter, Bartholomew said. The fund has gained nearly 3 percent in October and November, he said. Overall this year, the fund has lost about 1.8 percent of its value, he said.
But the earnings reserve account would require about $1.2 billion by July 30 to pay dividends and inflation-proof the fund, Bartholomew said.
Each year the $23.1 billion fund pays dividends to eligible Alaskans from a percentage of its earnings reserve. Market volatility has drained that fund at least twice in the last six months.
The permanent fund board of trustees will review the makeup of the fund in February but are not expected to make large changes. But the quarterly earnings report also cited the need for a constitutional amendment to change the way dividends are paid.
The board has backed a plan to pay dividends based on a percent of the fund's total value, rather than its market performance. That proposal would require approval by the Legislature to put it on a statewide ballot for voters.