Alaska Permanent Fund Contemplates a New Dalio-Backed Gold Allocation

The new allocation would provide the portfolio with a new risk-mitigating asset class, citing the support of Bridgewater Associates’ Ray Dalio.

The Alaska Permanent Fund Corporation (APFC) board is discussing the potential of adding a new gold allocation to its $67 billion portfolio, as it received a report from its staff touting the diversifying characteristics of bringing the asset class on board.

The report hypothesized a 33.3% exposure to gold within the fund’s real assets portfolio would net an exposure of about $1.4 billion, or about 2% of the total fund.

Alaska is looking into diversifying its assets because “the APFC portfolio is vulnerable to environments of lower-than-expected growth or higher-than-expected inflation,” Bridgewater Associates said. The report illustrated the relatively prominent likelihood of a recession occurring by December and the risk of the United States entering a higher inflation environment in the future.

“[Gold] can be positioned to benefit from any eventual disappointing outcomes from today’s extreme and unprecedented Central Bank activities, favored emphatically by investors like Ray Dalio and Paul Singer,” the report said.

“I think these [equity linked/traditional investments] are unlikely to be good real returning investments and that those that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold,” Dalio said.

The board has stated its intentions to redefine its asset allocation policy this year, however, that could now be tentative due to operational strain caused by the coronavirus.

The gold allocation would be fitted into a “real assets completion portfolio,” together with TIPs [Treasury inflation-protected securities], leveraged loans, and listed infrastructure and natural resource equities. The report said the asset mix would formulate a “defensive and liquid portfolio” that provides the fund with inflation protection from a source other than private real estate.

While it would be forecast to have an expected return below that of real estate, the report states it would weather terrible market conditions more prudently, while delivering yield and other characteristics that are pertinent to real assets investments, such as low correlations with equities.

The report mentioned it is only for informational purposes, noting further action from the board could be taken in the future with a more revised asset allocation proposal. The one proposed in the report would last until fiscal year 2025.

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