Permanent Fund big loser in market crash

ANCHORAGE (KTUU) One of the big losers in the recent stock market tumble was Alaska’s Permanent Fund, which has fallen nearly $3 billion since its high point of $66.5 billion on Jan. 26.

But Angela Rodell, the Permanent Fund Corp.’s chief executive, said Alaskans shouldn’t worry.

“I think this volatility explains why we don’t have 100 per cent of the assets in the stock market,” Rodell said in an interview Wednesday. “We thought $100-barrel oil was going to last forever. We think bull markets are going to last forever. They don’t. This stuff is volatile and I guess that‘s the lesson to be taken from what’s happened the last 2½, three weeks. It’s just a reminder that markets are volatile — they go up and they go down.”

Rodell, a former revenue commissioner, said the diversity of the Permanent Fund’s investments protect it from declining too much when any one market falls.

On Tuesday, the most recent day that Permanent Fund Corp. records were available, $4.2 billion was invested in real estate, $11.9 billion in the bond market, $2 billion was in cash and $2.4 billion in hedge funds. The fund had $28.4 billion invested in stocks, the corporation said.

“When the stock market is going up like it has been over the course of the last year, particularly in January, I had a lot of questions about why weren’t we doubling down, why weren’t we going all in, why weren’t we putting everything in there,” Rodell said. “And instead what we were doing was, we were pulling money out of the stock market, actually cashing in on those gains to make sure we didn’t overexpose ourselves to a market correction — and it’s a good thing we did that.”

But the health of the Permanent Fund — Alaska’s sovereign wealth fund built largely with payments from oil leases on state land — looms larger than ever.

Not only do its earnings pay for the dividend program that yearly pays more than $1,000 to every Alaska man, woman and child, but the earnings are now budgeted to pay for state operations. Where oil taxes and royalties once covered more than three-quarters of the state’s budget, low oil prices and production have changed the proportion to about 30 percent, leaving a huge budget gap.

The Alaska House has argued that the state needs a diversity of revenue to resolve the gap, including a state income tax and higher oil taxes. But it’s in a stalemate with leaders in the Senate, which says the economy is improving and the Permanent Fund’s earning reserve should be tapped for the next few years until oil tax revenues catch up with the deficit.

The House and Senate are also arguing over how much can be drawn from the earnings reserve without over extending it.

Sen. Bill Wielechowski, an Anchorage Democrat and a member of the Senate’s minority caucus, said the big losses should be a warning that using the earnings reserve without a plan will be unsustainable. In 2010, the last time the Fund suffered big market losses, the earnings reserve was almost too broke to pay dividends, he said.

“That’s the kind of thing that will start happening,” Wielechowski said. “The system absolutely, positively is not set up to get continued draws from the earnings reserve.”

He predicted the earnings reserve will eventually dwindle to zero if the fund isn’t restructure and the Legislature relies on it to pay for general government.

But with its long-term strategies, the Permanent Fund has actually grown since its previous big reporting moment — July 1, 2017, the start of the state’s fiscal year. On that date, the fund was under $60 billion. On Tuesday, its listed value was $63.9 billion.

“So have we lost money?” Rodell said. “If the fiscal year were closing today, no, we’re up over 8 percent for the year. So it’s important to not get too caught up in the big daily jump up, and the big jumps down.”

The state constitution bars the Legislature from appropriating any amount from the Permanent Fund’s principal. But the earnings reserve, which is where profits from Permanent Fund investments go, is another matter.

The earnings reserve at the close of the fiscal year was $12.8 billion when the Permanent Fund itself was roughly four times that at $46.9 billion.

The Permanent Fund was created in a popular vote as a way to preserve some of the state’s oil wealth for the future. It received its first deposit of royalty payments in 1977 of $734,000.

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