Alaska’s New CIO Details the Fund’s Prolific Co-Investment Program

Despite recent losses, co-investments have generated a 63.4% annualized five-year return.
The $60.4 billion Alaska Permanent Fund Corp. (APFC) recently reported that its overall returns dipped into negative territory during its most recent reporting period—down 3.19% in the first half of the fiscal year 2019—much like the rest of the pension landscape after global equity markets fell. But the investment team managed to mitigate the losses and diversify into customized strategies, such as the fund’s $1.6 billion co-investment program that generated five-year annualized returns surmounting to 63.4% as of December 31, 2018.

The fund’s recently-appointed Chief Investment Officer Marcus Frampton and the fund’s Head of Alternatives, Steve Moseley, brought the co-investment approach to the APFC in 2012, after developing their strategy together for close to 15 years dating back to a prior firm.

“The overall strength of APFC’s co-investment program can be attributed to consistency of approach and discipline in applying that approach to a wide range of situations in varied market environments,” Frampton told CIO. The private markets team delegated several dozen investments consistent with the approach since its inception, spanning the fund’s infrastructure, private credit, and private equity and special opportunities portfolios, he added.

“Our APFC team tends to spend north of 50% of their time on direct investments and co-investments (versus funds), but the mix of capital deployed between funds tends to be closer to a 75-25 split, as directs are more time-intensive per unit of capital than fund investments,” Frampton told CIO.

“The team has discretion to look at opportunities from managers we currently back, those we do not currently back, fund-less sponsor-led opportunities, as well as unsponsored direct situations,” he added.

The portfolio’s returns versus their benchmarks as of December 31 are below:

 FYTD 193 years5 years
Total fund performance-3.19%7.58%6.27%
Passive Index Benchmark -6.54%5.02%3.38%
Performance Blended Benchmark-2.44%6.90%5.26%
Board of Trustees Strategic Return Objective2.18%7.03%6.52%

In a statement, Chief Executive Officer Angela Rodell said “within a long-term investment horizon, it is anticipated that the global markets will go up and down—it is part of the buying-selling-trading process of the portfolio’s holdings. And while we invest with the intent that they go up more than they go down, there are going to be dips. Our team is poised to take advantage of those market dips.” The fund gained 2.13% in its first quarter of FY19 ending in September.