Permanent Fund hits $40 billion -
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By WESLEY LOY, wloy@adn.com
Published: July 14, 2007
Last Modified: July 14, 2007 at 01:19 AM
Alaska's oil-wealth savings account, the Permanent Fund, has bulled over $40 billion in value for the first time, state officials said Friday.
"We should all be proud of this milestone. I thank the trustees for their exceptional management of the fund," said Gov. Sarah Palin.
The fund rode a big jump on Wall Street on Thursday to close with a value of nearly $40.2 billion.
It was only two and a half years ago that the fund broke through the $30 billion barrier.
Permanent Fund money is invested in a range of stocks, bonds, real estate and other instruments.
A part of fund profits go toward paying a dividend to all qualified Alaska residents each fall. A Daily News analysis projects this year's dividend will be about $1,575, up nearly $500 from last year's.
The dividend amount is based not on the fund's size, but on an average of the last five years of Permanent Fund profits. The highest dividend ever paid was $1,964 in 2000.
So, how much is $40 billion?
• More than four times the state's operating budget for this year.
• Twice the gross domestic product of Iceland.
• Enough to cover the cost of the newest space shuttle, Endeavour -- 20 times over.
The fund is enjoying a remarkable run of growth, said Michael Burns, the fund's Juneau-based executive director. For the most recent fiscal year, which ended June 30, the fund is expected to show a gain of between 16 and 17 percent.
"It's absolutely extraordinary," he said. "This last 12 months, the fund has grown around $7 billion."
It happened despite a steep market setback in February and March, he said.
Carl Brady, who chairs the fund's board of trustees, noted the Permanent Fund received its first deposit of oil money -- less than $1 million -- in 1977.
Since then, he said, "a diversified portfolio of investments has allowed the fund to grow to $40 billion in just over 30 years, while paying out $13.7 billion in dividends."
In the early days, the fund's investment philosophy was extremely conservative with trustees sticking to relatively safe investments, mainly bonds. Over the years, state lawmakers have gradually loosened the reins on the Permanent Fund, giving the trustees the discretion to widen the investment portfolio. In 1983, it made its first plunge into stocks and real estate, and in 1990 it began investing in foreign stocks.
Most recently, the trustees have shifted some of the fund's money into more exotic investments such as private equity and hedge funds -- moves that have ginned a bit of controversy over whether such investments are too risky or secretive.
As the fund grows larger, it means problems as well as benefits, Burns said.
You've heard the expression, "Don't put all your eggs in one basket." The six trustees sure have, and they spend a lot of hours figuring out how to shotgun money into different kinds of investments in hopes that if some drop in value, others will rise.
The Permanent Fund is a so-called institutional fund -- public savings accounts that include state pension funds, college endowments and the like.
Lots are bigger than Alaska's Permanent Fund, but the fund is now big enough that it can attract "the very best talent," meaning top Outside money managers who want to handle a piece of the fund's money for a fee, Burns said.
Aside from paying dividends, the debate on what to do with a now $40 billion kitty remains an unsettled and divisive question.
"This is an extraordinary experiment in sociopolitical economics -- that people would set aside this money," said Burns, a former bank executive. "There are some very difficult questions about what the fund's role is and how it fits into the future. The good news is, we've got something to argue about." |
