CEO sheds light on permanent fund investments
Correction: An earlier version of this article stated there was an estimated $4 million increase to the Permanent Fund. The actual estimated amount was $4 billion.
Angela Rodell oversees $57 billion of state money that can’t be spent to bridge the current fiscal gap. That’s because the Alaska Constitution locks up mining, oil and gas royalties for Alaska Permanent Fund investments. The interest gained from this fund is used to pay for Permanent Fund Dividend check sent to Alaskans every year.
“Our role is simply to maximize returns of the fund,” Rodell, CEO of the Alaska Permanent Fund Corporation said to a class of UAF students last week. “The use of the funds is up to Alaskans.”
The Alaska Permanent Fund and the Permanent Fund Dividend can be easily confused, but serve very different purposes.
“The reality is there’s two accounts within the fund and the easiest way to think about it is: there’s the savings account and there’s the checking account,” Rodell said. “And the corpus of the fund that collects the royalties and inflation proofing, other corporations—that cannot be spent.”
The PFD is based on an algorithm that averages the resource-based royalties within a five year period. Oil prices over $100 a barrel explain why Alaskans have seen dividends well over $1,500 since 2013. Last year, Governor Bill Walker halved the check, resulting in a payout of $1,022, a move that has launched a divisive public debate about the future of the PFD and state spending.
There isn’t anything Rodell can do about dividend checks, but she emphasized that it is an economic engine for Alaska.
“The fund must be invested in attractive, meaningful investments that will give a return,” Rodell said.
While the fund grows based on royalty payments, the big growth comes from investments in all sectors around the world.
Rodell mentioned company success with recent investment strategies, citing an estimated $4 billion increase in the fund since last year. She said the permanent fund has investments around the world, including in Hawaii, the Lower 48 and other global stock markets, which could be playing into better returns so far this year. Real estate and publicly traded companies in Spain, Portugal, England, India, Brazil and Russia all compose the Alaska’s portfolio.
A long-term view of the investment money was the intention of the legislature when the fund and the corporation were created. The Alaska constitution requires that investments must be income-producing, maintain the principal while maximizing the total return, and conform to the prudent investor rule. This means the decisions must be made with prudence, intelligence and discretion expected of an institutional investor.
“Compared to public funds of similar size, the Alaska fund has usually beat their performance,” Rodell said.
Alaska also benefited from Rodell and her team’s timely response to recent political events. The shocking June 2016 Brexit vote stunned worldwide investors and sent the market crashing. Because of the location and time difference in Alaska from the United Kingdom, the corporation—still in their working day—responded by investing $500 million in the international equity market. In just 24 hours the market corrected itself, rendering a highly profitable investment decision.
The advantage of the time zone differences did not work out the same way during the U.S. presidential election. Because the final results extended late into the evening while U.S. markets were closed, UK and Asian markets could sweep in to buy low shares as the market reacted to another unexpected political outcome.
Watching the markets and being able to predict the effects of political events worldwide is a key to the success of the fund, Rodell said. Corporation employees will be watching upcoming elections across the globe for potential affects on the stock market.
“In April we have the elections in the Netherlands,” Rodell said. “But the really big one is going to be the French elections in May.”