News
It might seem challenging to run a $40 billion fund from Juneau four time zones away from Wall Street. But fund managers think the advantages of investing from this small city far outweigh any downfalls.
Backstage at the Alaska Permanent Fund Corporation 092111 NEWS 1 Capital City Weekly It might seem challenging to run a $40 billion fund from Juneau four time zones away from Wall Street. But fund managers think the advantages of investing from this small city far outweigh any downfalls.

Katie Spielberger/Capital City Weekly


Katie Spielberger/Capital City Weekly

A sculpture made from material from the Alaska Pipeline hangs in the vestibule of the Goldbelt Building, home to the Alaska Permanent Fund Corporation. The sculpture was given to the APFC by Alyeska Pipeline Service Company in 1997, on the 20th anniversary of the first deposit of North Slope crude oil revenue.

Click Thumbnails to View
Wednesday, September 21, 2011

Story last updated at 9/21/2011 - 1:23 pm

Backstage at the Alaska Permanent Fund Corporation

JUNEAU - The hallways of the Alaska Permanent Fund Corporation's (APFC) office are lined with framed photographs of the fund's real estate holdings across the country - Tysons Corner Center in Virginia, North Bridge in Chicago, Independence Plaza in Denver. In executive director Michael Burn's office, wall clocks are set to New York time, London time, Tokyo time and Alaska time. When Wall Street opens, the fund's portfolio managers are at their desks, six different computer screens up and running. At the heart of the building, backup upon backup in the server room keeps operations alive no matter what happens outside.

And outside the corporation's home in the Goldbelt Building near the Juneau-Douglas Bridge, most passersby probably give little thought to the inner workings of the fund whose investments ultimately result in their annual dividend checks. But the APFC wants Alaskans to know what they are up to. After all, they are managing our state's largest asset.

The two biggest buzzwords at the APFC may very well be "transparency" and "redundancy," two things that, from accounting to technology, allow the fund's managers to keep operating the fund with an eye on the future.

The permanent fund was created by constitutional amendment in 1976, stating that, "At least 25 percent of all mineral lease rentals, royalties, royalty sales proceeds, federal mineral revenue-sharing payments and bonuses received by the state be placed in a permanent fund, the principal of which may only be used for income-producing investments." In 1980, the legislature created the APFC to manage the fund's investments, as well as the separate Permanent Fund Dividend Division to operate the PFD program.

Effectively, the fund has taken revenues and royalties from a non-renewable resource - oil - and turned it into a renewable financial resource through long-term investments managed by the APFC. In the early days, oil money was the biggest contributor to the fund, but now returns on investments have come to dwarf the significance of oil, said Laura Achee, the director of communications and administration for the APFC.

In her office, Achee still has a ledger from the early analog days of the fund, with penciled entries showing investments and returns. Today, the fund's center of operations may be one of the most wired in Juneau. There are as many in-house servers as staff members, dedicated servers all the way to the east coast, and backup communications systems down to satellite phones, so that the fund's managers can continue to work regardless of any calamity the might befall Juneau.

It might seem challenging to run a $40 billion fund from Juneau four time zones away from Wall Street. But fund managers think the advantages of investing from this small city far outweigh any downfalls.

Like his former coworkers on Wall Street, Chris Cummins, a senior portfolio manager in the fixed income division of the APFC, starts work at Wall Street time, and eats breakfast and lunch at his desk. Unlike his counterparts on the east coast, however, he no longer has a two-hour commute, and it's easy to escape to the mountains to clear his mind.

"In the New York area there are a lot of people within the industry and there's a lot of chatter ... that subconsciously or consciously might influence your process," he said. "Being removed from it kind of gives you a clearer view where you can formulate your own thoughts and opinions ... As Warren Buffett said, that was the benefit of being in Omaha, Nebraska."

Three people manage the $5 billion fixed income portfolio, but their experience runs deep, Cummins said. The "newbie" joining the staff shortly is coming from World Bank with 13 years experience.

"We've done a pretty good job. Over the past five years our fund, the fixed income portfolio, has outperformed 75 percent of like managers, so that's pretty darn strong, doing that from a little place in Alaska," Cummins said. "We're proud of that. That's important to us, that we put up some strong numbers."

The fund focuses on long-term investments, which gives its managers a luxury other fund managers don't have - they don't have to view quarter to quarter, but can focus on the long term. It's a wise way to manage money in general, Cummins thinks. It also allows them to be patient and wait for the right opportunities.

"If we don't have a big conviction, we can pretty much stay neutral, stay close to shore and wait for a very obvious opportunity," he said.

Cummins and his colleagues in the fixed income portfolio review each other's trades before doing anything, and of course, there are plenty of boundaries they must operate within.

"I can't sell our treasuries and go long Elvis collectable plates," he laughed. "It's pretty buttoned down, as it should be.... So the people of Alaska can sleep at night."

The APFC runs a lean operation in-house, and most investing operations are outsourced. In-house staff members mainly work in accounting, information technology, and managing external mangers.

"We're sort of like an orchestra, everybody's got their part to play," Burns said.

If the fund is an orchestra, Burns might be conductor, overseeing all of the in-house overseers. He still remembers his first day at the APFC over 8 years ago, reviewing the fund's activity from the day before.

"I've been in banking for 30 years, so I thought I'd been around big numbers," he said "The very first day I came in they brought this (report) in and showed it to me. I looked at it and said, 'Am I reading this right? It looks to me like we made $95 million yesterday.' And they said, 'Yeah you're reading this exactly right.' And then they said, 'And you know the interesting thing? ... That's not a big day.' And that really got my attention."

Now, Burns delights in sharing how much the fund makes per minute. One day last week, he calculated the fund was making about $975,000 an hour - that's $16,250 per minute, and about $271 each second.

Unaudited figures released in early August for Fiscal Year 2011 reported that the fund gained 20.6 percent last year, the third highest return in its history, and the first year-end close over $40 billion. (The final audited numbers will be released at the APFC's annual meeting Sept. 29 and 30 in Juneau.)

Details of the fund's portfolio are open to the public through its website, from its top stock holdings (the current top four are Apple, GMO Emerging Markets Fund, Exxon Mobil and Nestle) to maps showing the location of its real estate holdings.

"Everything in the portfolio has a role," Burn said. "Absent a total collapse in the financial markets, something should be working when something else isn't. ... You set your asset allocation based on long-term returns. You're really taking a historical look. When something happens, you rebalance back towards it."

No matter what is currently happening with the fund, Burns stresses the long-term view. The fund's customers include people who are 11 years old, 11 months old, and not born yet, he said.

"I think the biggest asset we have, and it doesn't show up on our balance sheet ... [is] that we really are a long-term investor," Burns said. "We're not a pension fund. We don't have people lined up at our door the first of every month looking for their retirement check. ... That ability to really, truly, be multigenerational is really helpful for us."

By a disciplined following of investment principles, sometimes the fund has been very lucky, such as when they invested $750 million in the stock market in March, 2009.

"As it turned out we missed the bottom of the market by one or two days," Burns said. "Now, that wasn't what we were trying to do. We said, look this money is where we should be putting money back in because we're below our allocation ... If we're within two months of the bottom we're doing our job. Two days, that's luck."

This long-term view allows the fund - and its customers - to remain calm even during market downturns.

"There are good day and bad days, but there are a lot of days," Burns said.

"It's a lot easier for us to hold our breath and ride through the down markets knowing we'll come up on the other side," Achee added.

In the downturn of recent years, other states - which, Burns said, "by and large, are living hand to mouth" - have been paying more attention to Alaska's Permanent Fund, wondering if they could establish something similar. But, "It really takes a windfall, especially now," he said.

On the other side of things, Alaska citizens offer suggestions as to where to put investments, Burns said. For example, a few years ago, one concerned citizen in Kenai kept lobbying for the fund to invest in the building of an Alaska-Yukon theme park in Florida.

But during the economic crisis of 2008, Burn's inbox was surprisingly empty.

"When we're making money we get a lot of suggestions," he said. "When we went through that crisis, in 2008, 2009, I mean [we] absolutely, literally did not get one single e-mail, one letter, anything, saying, 'How could you be such an idiot?' 'How could you have lost that money?' 'Why weren't you in gold?' ... I am still stunned, not one."

He attributes it to the public realizing that everyone was being hit, but still marvels at Alaskan's relationship to their fund.

"I think it's a real tribute to the people, the maturity they have towards the fund," he said.

The fund's employees who were born in Alaska often find special significance to working at the fund. "I've had every dividend that was ever issued," said Chief Financial Officer Julie Hamilton. And with over two decades of accounting experience, she's ended up in arguably one of the most interesting places she could work in the state. "If you're interested in investments, this is probably the best place in Alaska to learn about them," she said.

Learn more about the activities of the Alaska Permanent Fund Corporation at www.apfc.org.

Katie Spielberger may be reached at katie.spielberger@capweek.com.


Loading...