…As Alaska Gears Up to Go It Alone

A little more risk; a little more leverage; and a bunch more internal staff.

(May 28, 2013) — The Alaska Permanent Fund Corporation has laid the groundwork to internalise three major strands of its investment capability, continuing a growing trend for mega-funds to bring expertise in-house.

Last week, the fund’s trustees agreed to change its investment policy to create an internally managed programme for stocks, and co-investment strategies for private equity and absolute return funds, a report from the meeting states.

“As the fund grows in size, it starts to make fiscal sense to bring investments in-house when we feel our ability is comparable to our external managers,” said Trustee Chair Bill Moran. “If we can match their performance, we can keep our exposure to existing asset classes at target levels while paying lower fees over time.”

The Alaska fund has already brought significant asset management capability in-house. The internal teams run non-US bonds and infrastructure.

Following last week’s decision, private equity co-investment will be implemented first, with the other initiatives brought online as the fund staffs up, the meeting report said. These private equity co-investments have been allocated $200 million, alongside an allotted $250 million for third party mandates.

Overall, the fund’s allocation to private equity was boosted by a further $775 million to $1.2 billion. Infrastructure funds were also given a further $400 million, taking the total allocation to $1.75 billion.

Investment staff received a mandate to participate in “special opportunity investments with commitments of more than two years”.

Aside from staffing discussions, the issue of leverage and risk loomed large for the trustees of the $46 billion fund.

Maximum leverage in the fund’s real estate portfolio was boosted from 25% to 35% in order to “take advantage of historically low interest rates,” while higher risk investments were permitted in its absolute return portfolio.

“[Trustees] amended the investment policy to allow up to 50% of the absolute return portfolio to be invested with funds seeking a higher return,” the report said. “To-date, the entire mandate had been placed in funds that sought an absolute return with corresponding lower level of risk. This change will provide for more return potential while still managing the total risk level of the absolute return fund program.”

Related content: Interview with Jay Willoughby, CIO Alaska Permanent Fund