Legislature(2019 - 2020)CAPITOL 106
05/07/2019 03:00 PM House STATE AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| HJR5|| HJR6|| HJR7 | |
| HB139 | |
| Presentation(s): Permanent Fund 101 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HJR 5 | TELECONFERENCED | |
| += | HJR 6 | TELECONFERENCED | |
| += | HJR 7 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 139 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
HOUSE STATE AFFAIRS STANDING COMMITTEE
May 7, 2019
3:08 p.m.
MEMBERS PRESENT
Representative Zack Fields, Co-Chair
Representative Jonathan Kreiss-Tomkins, Co-Chair
Representative Grier Hopkins
Representative Andi Story
Representative Sarah Vance
Representative Laddie Shaw
MEMBERS ABSENT
Representative Adam Wool
OTHER LEGISLATORS PRESENT
Senator Click Bishop
Representative Harriet Drummond
Representative Kelly Merrick
Representative Bart LeBon
Representative Dan Ortiz
Representative Sara Hannan
COMMITTEE CALENDAR
HOUSE JOINT RESOLUTION NO. 5
Proposing amendments to the Constitution of the State of Alaska
prohibiting the establishment of, or increase to, a state tax
without the approval of the voters of the state; and relating to
the initiative process.
- HEARD & HELD
HOUSE JOINT RESOLUTION NO. 6
Proposing amendments to the Constitution of the State of Alaska
relating to the Alaska permanent fund and the permanent fund
dividend.
- HEARD & HELD
HOUSE JOINT RESOLUTION NO. 7
Proposing amendments to the Constitution of the State of Alaska
relating to an appropriation limit; relating to the budget
reserve fund and establishing the savings reserve fund; and
relating to the permanent fund.
- HEARD & HELD
HOUSE BILL NO. 139
"An Act providing an exemption from the state procurement code
for the acquisition of investment-related services for assets
managed by the Board of Trustees of the Alaska Permanent Fund
Corporation."
- MOVED HB 139 OUT OF COMMITTEE
PRESENTATION: PERMANENT FUND 101
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: HJR 5
SHORT TITLE: CONST. AM: STATE TAX; INTIATIVE
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/20/19 (H) READ THE FIRST TIME - REFERRALS
02/20/19 (H) STA, JUD, FIN
04/30/19 (H) STA AT 3:00 PM GRUENBERG 120
04/30/19 (H) Heard & Held
04/30/19 (H) MINUTE(STA)
05/02/19 (H) STA AT 3:00 PM GRUENBERG 120
05/02/19 (H) Scheduled but Not Heard
05/07/19 (H) STA AT 3:00 PM CAPITOL 106
BILL: HJR 6
SHORT TITLE: CONST. AM.:PERMANENT FUND & DIVIDEND
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/20/19 (H) READ THE FIRST TIME - REFERRALS
02/20/19 (H) STA, JUD, FIN
04/25/19 (H) STA AT 3:00 PM GRUENBERG 120
04/25/19 (H) Heard & Held
04/25/19 (H) MINUTE(STA)
04/30/19 (H) STA AT 3:00 PM GRUENBERG 120
04/30/19 (H) Heard & Held
04/30/19 (H) MINUTE(STA)
05/02/19 (H) STA AT 3:00 PM GRUENBERG 120
05/02/19 (H) Scheduled but Not Heard
05/07/19 (H) STA AT 3:00 PM CAPITOL 106
BILL: HJR 7
SHORT TITLE: CONST AM:APPROP. LIMIT; RESERVE FUND
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/20/19 (H) READ THE FIRST TIME - REFERRALS
02/20/19 (H) STA, JUD, FIN
04/30/19 (H) STA AT 3:00 PM GRUENBERG 120
04/30/19 (H) Heard & Held
04/30/19 (H) MINUTE(STA)
05/02/19 (H) STA AT 3:00 PM GRUENBERG 120
05/02/19 (H) Heard & Held
05/02/19 (H) MINUTE(STA)
05/07/19 (H) STA AT 3:00 PM CAPITOL 106
BILL: HB 139
SHORT TITLE: AK PERM. FUND CORP. PROCUREMENT EXEMPTION
SPONSOR(s): JOHNSTON
04/17/19 (H) READ THE FIRST TIME - REFERRALS
04/17/19 (H) STA, FIN
04/25/19 (H) STA AT 3:00 PM GRUENBERG 120
04/25/19 (H) Heard & Held
04/25/19 (H) MINUTE(STA)
05/07/19 (H) STA AT 3:00 PM CAPITOL 106
WITNESS REGISTER
VIC FISCHER
Anchorage, Alaska
POSITION STATEMENT: Testified during the hearing on HJR 5, HJR
6, and HJR 7.
GORDON HARRISON
Juneau, Alaska
POSITION STATEMENT: Testified during the hearing on HJR 5, HJR
6, and HJR 7.
ANGELA RODELL, Chief Executive Officer
Alaska Permanent Fund Corporation (APFC)
Juneau, Alaska
POSITION STATEMENT: Presented "Permanent Fund 101" with the use
of a PowerPoint presentation.
ACTION NARRATIVE
3:08:18 PM
CO-CHAIR JONATHAN KREISS-TOMKINS called the House State Affairs
Standing Committee meeting to order at 3:08 p.m.
Representatives Hopkins, Story, Vance, Shaw, Fields, and Kreiss-
Tomkins were present at the call to order. Also present were
Senator Bishop and Representatives Drummond, Merrick, LeBon,
Ortiz, and Hannan.
HJR 5-CONST. AM: SHJR 5-CONST. AM: STATE TAX; INTIATIVE
HJR 6-CONST. AM.:PERMANENT FUND & DIVIDEND
HJR 7-CONST AM:APPROP. LIMIT; RESERVE FUND
3:09:55 PM
CO-CHAIR KREISS-TOMKINS announced that the first order of
business would be HOUSE JOINT RESOLUTION NO. 5, Proposing
amendments to the Constitution of the State of Alaska
prohibiting the establishment of, or increase to, a state tax
without the approval of the voters of the state; and relating to
the initiative process and HOUSE JOINT RESOLUTION NO. 6,
Proposing amendments to the Constitution of the State of Alaska
relating to the Alaska permanent fund and the permanent fund
dividend and HOUSE JOINT RESOLUTION NO. 7, Proposing amendments
to the Constitution of the State of Alaska relating to an
appropriation limit; relating to the budget reserve fund and
establishing the savings reserve fund; and relating to the
permanent fund.
CO-CHAIR KREISS-TOMKINS relayed a personal anecdote of his first
meeting with Vic Fischer at the Conference of Young Alaskans.
He asked Mr. Fischer to offer comments and insights to the House
State Affairs Standing Committee regarding the Alaska State
Constitution and the proposed amendments under HJR 5, HJR 6, and
HJR 7.
3:13:29 PM
VIC FISCHER testified as a former delegate to Alaska's
Constitutional Convention. He responded to Representative
Kreiss-Tomkins's anecdote. He then referred to an opinion
editorial ("Op Ed") that he recently authored, published in the
Anchorage Daily News and other local newspapers, entitled "The
Alaska I helped build is under attack," which read in part as
follows:
As one of the founders of Alaska statehood, I am
appalled by Gov. Mike Dunleavy's proposed budget,
which drastically cuts funding for K-12 education and
the university, and slashes health services for
213,000 Alaskans, half of them children. It reduces
support for seniors and undermines the taxing
authority of local governments across the state.
The Alaska that I helped to build is under attack.
When we wrote Alaska's Constitution in 1955-56 and
achieved statehood in 1959, we established a structure
of state and local government to provide essential
services. Now, 60 years later, the ideals of statehood
and our constitution are under assault by Gov.
Dunleavy and his people.
3:18:57 PM
MR. FISCHER relayed that when he reviewed the proposed
constitutional amendments under HJR 5, HJR 6, and HJR 7, he
thought back to his involvement in World War II - a war to
protect democracy around the world. After the war he came to
Alaska, which was a territory at the time, and became involved
in the statehood movement. He ran and was elected to be a
delegate to the constitutional convention. He said that the
impetus to become a state was so that the residents of Alaska
could be full-fledged citizens of the U.S. and control their own
futures. The constitutional convention was initiated before
statehood to demonstrate that the territory was mature enough to
design a constitution that was as good as - and maybe better
than - any other constitution in the U.S.
3:23:01 PM
MR. FISCHER stated that the Alaska State Constitution was
drafted over a period of 75 active days in session at the
Fairbanks campus of the University of Alaska - the only campus
of the university at that time. It was an excellent venue in
that it was away from politics and special interests; the
convention lacked partisanship; the elections were non-partisan;
and there was no mention of political parties. They were
working to build a foundation for the future of Alaska. The
constitution was modeled after the U.S. Constitution; it was to
be brief, easy to understand, and non-partisan, and it would
provide the policies and structures for the future state of
Alaska. He mentioned his collaboration and partnership with
Jack Coghill, despite political differences.
3:26:41 PM
MR. FISCHER expressed that the constitution is composed of
concise, short, declarative statements of policy, process, and
organization. He stated that the proposed amendments under HJR
5, HJR 6, and HJR 7 are atrociously written. For the original
constitution, the Committee on Drafting and Style set the rules
for how to write a constitution. The language in the proposed
amendments is based in legislative drafting. He relayed his
extensive experience in state government over the years and
offered that "there is a time and place for everything." He
maintained that the language in the proposed amendments does not
belong in a constitution.
3:29:47 PM
MR. FISCHER referred to HJR 5, which proposes a limitation on
taxes by amending Section 1 of Article IX [of the constitution]
- Finance and Taxation. He cited Section 1, which read in part,
"The power of taxation shall never be surrendered." It is a
solid policy statement; the proposed amendment would undermine
the stated policy. He maintained that restrictions should not
be put into the constitution based on "somebody's thinking
today; it may be totally inappropriate 20 or 50 years hence."
He said that the proposed amendments would shackle the
legislature and impose the will and values of today on future
generations. He continued by saying that the constitution has
been in effect for 60 years and it works. He offered that there
have been amendments to the constitution - some of them
atrociously written - because there has been no process of style
and drafting in consideration of policies versus legislation.
He declared that HJR 7 is an insult to constitutional style
drafting; "it just goes on and on and on with detailed
legislative matter that may be totally inappropriate seven years
from now, to say nothing of seventy years from now."
3:33:15 PM
MR. FISCHER referred to Gordon Harrison's publication, entitled
"Alaska's Constitution A Citizen's Guide." He suggested the
House State Affairs Standing Committee invite Mr. Harrison to
respond to the issues currently being discussed in the committee
meeting.
3:34:33 PM
GORDON HARRISON opined that the proposed spending limit under
HJR 7 is particularly unwise, because the state has no idea what
is in the future for Alaska. He mentioned an oil field in Texas
- the largest in the U.S. - which had declined to the point it
almost had been abandoned. Within the last few years it has
revived and is now the largest oil field in the world. He
declared, "Nobody foresaw that." He maintained that nobody can
foresee the wild price swings in oil; the future is
unpredictable. He offered that a spending limit, as proposed by
HJR 7, is very unwise. He added that the spending limit already
in law has not been effective. That spending limit was adopted
at a time when spending was at record highs. Currently spending
- by historic levels - is low. He concluded that a spending
limit now would be overstated.
3:36:32 PM
REPRESENTATIVE HOPKINS referred to constitutional changes in the
past and asked for circumstances under which the legislature
should propose amendments to the constitution.
MR. FISCHER responded that the question to be answered is, Is it
necessary to put something in the constitution? He gave an
example: Article 8 is titled "Natural Resources." In 1955-56,
there was no idea that Alaska would have "big" oil. Article 8
is the basis for the wealth of Alaska; it implemented policy
directives with specific requirements; and one of the directives
required public notice. He cited a lawsuit against the
Department of Natural Resources (DNR) for issuing hundreds of
permits for water rights and drill sites without public notice;
each site was a separate issue; the case went to the Alaska
Supreme Court [Moore v. State, 1976]. He quoted from the
decision, which read in part, "No disposals or leases of state
lands, or interests therein, shall be made without prior notice
and other safeguards ...." He maintained that a short simple
phrase or sentence represents constitutional law; otherwise the
legislature will become involved in minutia, and future
legislators will have to "clean up the mess." He stated that it
is the legislature's responsibility to decide what
constitutional amendments should go before the people for a
vote; the constitution requires two-thirds vote of the
membership of each house to do so. He asserted that it is not
the governor's responsibility or the Alaska Supreme Court's
responsibility to decide what goes before the people for a vote.
He said, "Think of it in terms of not just one election or two
elections; think of it that this is for your children, your
grandchildren, and their grandchildren.
3:41:51 PM
CO-CHAIR FIELDS referred to committee discussion of HJR 5 - the
proposed constitutional amendment on taxation - which would
deprive Alaskans of the authority to pass initiatives by
requiring legislative approval of taxation passed by initiative.
He asked for comment on the constitutional delegates' thinking
on retaining the ability of the people to institute taxes
through the initiative process.
MR. HARRISION replied that the delegates were ambivalent about
the initiative process. On the one hand, they granted the power
[to the people]; however, on the other hand, they trusted the
legislature to do the right thing in the long run. He said that
they gave the legislature the authority to repeal an initiative
in two years.
MR. FISCHER asserted that the constitutional amendment under HJR
5, which would require approval by the legislature for an
initiative to be enacted, would be unconstitutional. He stated
that the initiative is the exercise of legislative power by the
people.
3:44:44 PM
REPRESENTATIVE STORY asked Mr. Fischer to comment on two issues.
The first is that many people feel that currently the state is
overspending, hence the proposed constitutional amendment under
HJR 7. The second is that the constitutional convention gave
great power to the governor for vetoing the work of the
legislature.
MR. FISCHER relayed that he was in the legislature in 1982 when
the statutory formula for the permanent fund dividend (PFD) was
adopted into law. He reiterated that to reference statute in
the constitution, as proposed under HJR 6, is preposterous. He
maintained that it is the responsibility of the legislature to
abide by the constitution and its own laws; the legislature is
not responsible for what happened four, three, or two years ago
ignoring state laws. He said, "Don't make it worse by putting
details like that into the constitution, because in one way or
another, it's not going to work." He mentioned that if the
state had these [proposed] amendments in the constitution during
the construction of the Trans-Alaska Pipeline, state government
would have been incapable of responding to the constant changes.
MR. FISCHER offered that behind the proposals is a strategy of
reducing the wealth of the people of Alaska; applied into the
future, they would impoverish Alaska; it would be a downhill
spiral. He said that the prohibition of a change in tax
structure without a vote of the people - tax structures that
were not created by a vote of the people but by the legislature
- would freeze today's structure for the future.
3:49:29 PM
MR. FISCHER relayed that Bob Bartlett played a larger role than
anyone else in securing statehood for Alaska. Mr. Fischer read
from his book, Alaska's Constitutional Convention, which quotes
Bob Bartlett in his keynote address to the convention as follows
[original punctuation provided]:
This moment will be a critical one in Alaska's future
history. Development must not be confused with
exploitation at this time. The financial welfare of
the future state and the well-being of its present and
unborn citizens depend upon the wise administration
and oversight of these developmental activities. Two
very real dangers are present. The first, and most
obvious, danger is that of exploitation under the thin
disguise of development. The taking of Alaska's
mineral resources without leaving some reasonable
return for the support of Alaska governmental services
and the use of all the people in Alaska will mean a
betrayal in the administration of the people's wealth.
The second danger is that outside interests,
determined to stifle any development in Alaska which
might compete with their activities elsewhere, will
attempt to acquire great areas of Alaska's public
lands in order NOT to develop them until such time as,
in the omnipotence and the pursuance of their own
interests, they see fit.
MR. FISCHER relayed that a good example of the second concern is
as follows: Point Thomson oil and gas field was discovered near
the Arctic National Wildlife Refuge (ANWR), and ExxonMobil
Corporation (Exxon) "sat on" the resource for 30 years because
it had interests elsewhere. Governor Frank Murkowski threatened
to cancel the leases unless it developed the resource.
MR. FISCHER gave an example of the first caution that Mr.
Bartlett gave to the convention: Senate Bill 21 [passed during
the Twenty-Eighth Alaska State Legislature, 2013-2014, signed
into law 5/21/13] reduced the state's revenue from oil extracted
from the state's resources. "Every day, every week, every
month, every year that people of Alaska are not getting a fair
share of the oil [wealth] ...." He quoted former Governor Wally
Hickel, who said, "It's our oil." Alaska should get a proper
return. He maintained that if the constitutional amendment
[under HJR 5] - relating to changes in taxes - is approved, it
would freeze the existing tax structure and not allow future
legislatures future actions. The barrier to change it would be
huge; and therefore, the people of Alaska may not get their fair
share of the resource taken.
3:54:49 PM
CO-CHAIR KREISS-TOMKINS mentioned that Alaska's constitution
provides a [veto] override threshold for budget bills and
appropriation bills of three-quarters [vote] and an override
threshold for non-appropriation bills of two-thirds. He said
that most other states have a uniform override threshold
regardless of the bills being policy or appropriations. He
asked what the thinking was of the framers of the constitution
in providing a different and higher threshold for overriding
line item vetoes on appropriation bills versus non-appropriation
bills.
MR. FISCHER said that he does not know. He said that the
quotation from the chairman of the Alaska Constitutional
Convention Committee on the Executive Branch was that the
delegates are putting together a constitution that includes a
strong executive. The fiscal structure of the state dictates
that appropriations and the budget are the legislature's
responsibility; a strong governor has strong veto power. Mr.
Fischer stated that he does not recall the issue being discussed
on the floor of the constitutional convention and he didn't
notice the distinction. He said that the convention wanted each
branch of state government to be as strong and independent as
possible - as effective as possible. He mentioned the proposed
constitutional amendment [under SJR 3, relating to the
membership of the Alaska Judicial Council] that would change the
membership of the judicial council. He stated that the
membership of the judicial council was designed in a very
deliberate process to be a non-partisan, non-political, merit-
based selection of judges and justices. The proposal to subject
the attorney appointees to the legislative approval process
would politicize the future judiciary of the State of Alaska.
He maintained that the design of the judicial council was
intentional, and he reiterated that the emphasis was on a strong
legislature, a strong executive, and a strong judiciary. As a
territory, Alaskans had no authority over themselves or the
territory.
3:59:49 PM
CO-CHAIR KREISS-TOMKINS asked for Mr. Fischer's advice for
drafting a proposed constitutional amendment. He asked whether
there have been amendments successfully incorporated into the
constitution that are good examples of that style of drafting.
MR. FISCHER replied that a process is needed along with a
committee of reviewers. He offered that Gordon Harrison, who
has studied the constitution, written about it, and worked for
the legislature, knows the internal and external processes and
could write [a constitutional amendment]. He emphasized that it
is the responsibility of the legislature to put the amendment
before the people - not the governor's responsibility. He said
that in 2022, Alaskans will vote on the question, Shall there
being a constitutional convention? In 1979, the legislature
established a joint committee to prepare for the question in
1982; it sponsored research to provided information [to the
voters]. He maintained that it would take work to provide the
pros and cons and a decent foundation [for voters to make that
decision].
4:03:40 PM
CO-CHAIR FIELDS expressed his appreciation for Mr. Fischer's
testimony and perspective.
[HJR 5, HJR 6, and HJR 7 were held over.]
4:06:18 PM
The committee took an at-ease from 4:06 p.m. to 4:20 p.m.
HB 139-AK PERM. FUND CORP. PROCUREMENT EXEMPTION
4:20:14 PM
CO-CHAIR KREISS-TOMKINS announced that the next order of
business would be HOUSE BILL NO. 139, "An Act providing an
exemption from the state procurement code for the acquisition of
investment-related services for assets managed by the Board of
Trustees of the Alaska Permanent Fund Corporation."
CO-CHAIR KREISS-TOMKINS opened public testimony on HB 139.
After ascertaining that no one wished to testify, he closed
public testimony.
REPRESENTATIVE STORY expressed her support for HB 139.
4:21:11 PM
REPRESENTATIVE HOPKINS moved to report HB 139 out of committee
with individual recommendations and the accompanying zero fiscal
note. There being no objection, HB 139 was reported from the
House State Affairs Standing Committee.
^PRESENTATION(S): Permanent Fund 101
PRESENTATION(S): Permanent Fund 101
4:21:36 PM
CO-CHAIR KREISS-TOMKINS announced that the final order of
business would be a presentation by Angela Rodell, Chief
Executive Officer, Alaska Permanent Fund Corp.
4:21:54 PM
The committee took an at-ease at 4:22 p.m.
4:22:44 PM
ANGELA RODELL, Chief Executive Officer, Alaska Permanent Fund
Corporation (APFC), began the presentation on "Permanent Fund
101" with slide 2, entitled "1969 The Debate Begins." She
stated that 1969 was the year that Alaska received $900 million
in Prudhoe lease sale bonuses. At that time - which was ten
years after statehood - the state's budget was only $173
million. It was a time when the state had tremendous
infrastructure needs; and it had figured out how to tap into a
very important resource for those needs.
MS. RODELL continued with slide 3, entitled "The Alaska
Permanent Fund," and reviewed the timeline of events, which read
as follows:
1976 Alaska voters approve a Constitutional Amendment
establishing the Permanent Fund.
1977 Permanent Fund receives its first deposit of
constitutionally dedicated oil revenues; $734,000.
1980 The Alaska Permanent Fund Corporation is
established to manage and invest the Fund.
2019 The Fund now has over $64 billion in assets under
management.
MS. RODELL turned to slide 3, entitled "The Alaska
Constitution," and noted the simplicity and brevity of the
language in the constitutional amendment that created the Alaska
Permanent Fund. It was passed by a vote of 75,588 to 38,518.
The amendment read as follows:
Alaska Constitution Article IX, Section 15
Section 15. Alaska Permanent Fund
At least twenty-five percent of all mineral lease
rentals, royalties, royalty sale proceeds, federal
mineral revenue sharing payments and bonuses received
by the state shall be placed in a permanent fund, the
principal of which shall be used only for those
income-producing investments specifically designated
by law as eligible for permanent fund investments. All
income from the permanent fund shall be deposited in
the general fund unless otherwise provided by law.
4:25:23 PM
MS. RODELL moved to slide 4, entitled "APFC's Mission & Vision,"
and offered that the mission of APFC was put into statute in
1980, the year of inception. She reviewed the slide, which read
as follows:
APFC's Mission
To manage and invest the assets of the permanent fund
and other funds designated by law.
APFC's Vision
To deliver sustained, compelling investment returns as
the United States' leading sovereign endowment
manager, benefitting all current and future
generations of Alaskans.
square4 Reflects statutory language and intent as well as
Board and staff aspirations.
square4 Emphasizes maximizing returns in a fully
sustainable manner.
square4 Underscores the intention for the Fund to be a
perpetual resource for the State of Alaska.
square4 Embodies core values of Integrity, Stewardship,
and Passion.
MS. RODELL referred to slide 5, entitled "Board of Trustees,"
which read as follows:
As the fiduciaries, the Trustees have a duty to
Alaskans in assuring that the Permanent Fund is
managed and invested in a manner consistent with
legislative findings: AS 37.13.020.
square4 The Fund should provide a means of conserving a
portion of the state's revenue from mineral
resources to benefit all generations of Alaskans.
square4 The Fund's goal should be to maintain safety of
principal while maximizing total return.
square4 The Fund should be used as a savings device
managed to allow the maximum use of disposable
income from the Fund for the purposes designated
by law.
MS. RODELL added that there is no mention of investing to a
specific liability, to a specific dividend amount, or to a
specific purpose.
MS. RODELL introduced the next topic on slide 7, entitled "The
Fund," and explained that the [permanent] fund is comprised of
two accounts of money. She moved on to slide 8, entitled
"Principal," to discuss the first account. The slide read as
follows:
square4 The Principal is constitutionally established and
permanently protected; it can only be used for
income-producing investments.
square4 The Principal is built through royalty deposits,
inflation proofing, and other special
appropriations.
MS. RODELL identified the contributions to the principal over
the years: $16.9 billion came from the constitutional deposits
[from mineral reserves]; $16.2 billion was transferred from the
earnings reserve account (ERA) for inflation proofing; and
special appropriations from ERA and the general fund (GF)
contributed a total of $7.1 billion.
4:28:23 PM
MS. RODELL relayed the information on slide 9, entitled
"Contributions to Principal," which read as follows:
Royalty Deposits AS 37.13.010(a)(1) and (a)(2)
square4 The constitutionally minimum required 25% of
royalty proceeds.
square4 The statutorily mandated deposits of 50% for
leases after 1979.
Inflation Proofing AS 37.13.145(c)
square4 The inflation proofing projection is based upon
estimates for deposits into the Principal of the
Fund and the projected inflation rate as
calculated per statue.
MS. RODELL clarified, "It's is a one-year calendar year
inflation assumption against what the expectation of the
principal balance being at the end of the year."
CO-CHAIR KREISS-TOMKINS referred to the special appropriations
mentioned on slide 8 and mentioned that currently the
legislature is considering special appropriations. He asked,
"Do you have familiarity with past special appropriations from
the ERA to the principal of the permanent fund, and what
motivated those transfers from previous legislatures?"
MS. RODELL responded that approximately $4.2 billion of the $7.1
billion was from the ERA; the balance of $2.9 billion came from
GF. She offered that she did not know the motivation behind
those appropriations but suggested that there was a
[legislative] practice of "sweeping" the balance of the earnings
back into the corpus of the fund rather than leaving it behind
in the ERA - once the permanent fund dividends (PFDs) had been
dispersed.
CO-CHAIR KREISS-TOMKINS asked what the legislature did to take
precautions in the event of a poorly performing market, if the
ERA was not replenished with new earnings.
MS. RODELL suggested the possibility that the legislature had
not considered that scenario; however, she stated that she could
not speak to the reasoning behind historical legislative
actions. She expressed her belief that when the fund was viewed
as just earnings to be used for the dividend, there was no
expectation of a balance or concern for money for [future]
dividends.
4:31:36 PM
MS. RODELL referred to the chart in slide 9 to point out the
effects of the decline in royalty deposits due to the declining
price of oil and production: in 2016, 2017, and 2018, the
royalty appropriation in excess of 25 percent was rolled back to
the mandated 25 percent; and the inflation transfer did not
occur. She continued with slide 9, under "Inflation Proofing"
which read as follows:
square4 The Legislature appropriated FY19 inflation
proofing estimated to be $942 million on June
30th, 2019.
square4 The FY20 inflation proofing amount is estimated
to be $943 million, the actual amount will be
calculated at the end of the fiscal year. $1.4
billion for FY16-FY18 remains unappropriated.
MS. RODELL turned to slide 10, entitled "Statutory Net Income AS
37.13.140," and explained that statutory net income describes
the mechanism by which money is moved from the principal to the
ERA. She reminded the committee that the constitutional
language only dictates that all income from the permanent fund
shall be deposited into GF. In 1997, the generally accepted
accounting principles were changed to include the concept of
unrealized gains and losses in the definition of income. It is
at that time that the legislature adopted the definition of
statutory net income to recognize the difficulty of spending
unrealized gains and losses; the gains and losses are "on paper"
and not "cash in the bank." The definition allows APFC to
calculate income in terms of net gains and losses, which then
become statutory net income. She stated that these funds move
into the ERA and are subject to appropriation by a simple
majority vote.
MS. RODELL referred to the chart on slide 10 to point out that
the statutory net income has fluctuated over the years [2013-
2018]. Statutory net income - gain or loss - is a result of
investment activity only: receipt of interest coupons on bonds;
rental income on real estate investments; the sale of an asset
that has achieved its maximum value in order to reinvest the
money. She said that in 2018, there was an extraordinary sale
of a real estate asset that generated an all-time high statutory
net income of $6.3 billion. She added that APFC has not sold
assets to deliver a certain outcome, such as a dividend.
4:35:05 PM
CO-CHAIR KREISS-TOMKINS asked for an explanation of the
difference between realized gains and unrealized gains.
MS. RODELL answered that unrealized gains and losses reflect a
change in market value.
REPRESENTATIVE HOPKINS added his understanding that net realized
gains reflect assets sold off, which are moved into the ERA; the
unrealized gains stay in the corpus.
MS. RODELL explained that each investment is bought with funds
from the ERA and the principal on a pro rata basis depending on
the value of each account; the unrealized gain is used to
reimburse the ERA and the principal proportionally for the
amounts that each contributed to the cost of the investment; the
net gain is added to the ERA. She maintained that this
demonstrates the importance of inflation proofing - the
principal does not benefit from its investment activity.
REPRESENTATIVE HOPKINS asked why the gains are not realized
proportionally as well.
MS. RODELL answered that the constitutional language is very
clear that all income shall go to the general fund.
MS. RODELL moved on to slide 11, entitled "Assets Under
Management in billions," which demonstrates the change in assets
under management over the past five years nine months. The
principal has stayed relatively stable - at about $46 billion -
over the period despite the smaller deposits of royalty and lack
of inflation proofing in 2016, 2017, and 2018. She said that
the principal includes unrealized gains. The ERA has grown over
the same period from $6.2 billion in fiscal year 2014 (FY 14) to
$18.4 billion as of the first nine months of FY 19.
CO-CHAIR KREISS-TOMKINS asked whether the variation in the size
of the principal is singularly attributed to variation in
unrealized gains.
MS. RODELL responded yes.
4:39:11 PM
MS. RODELL referred to slide 12, entitled "Values," to compare
the FY 18 values of the two funds - the principal and the ERA -
with those as of the first nine months of FY 19. Alaska
collected $300 million in royalties over the nine-month period;
the principal increased from $40.2 billion to $40.5 billion; and
the associated unrealized gain was $5.6 billion. At the end of
FY 18, there was $13.7 billion of realized earnings in the ERA;
the associated unrealized gain was $2.4 billion; and the percent
of market value (POMV) draw to fund FY 19 activities was $2.7
billion. She pointed out that as of March 31, 2019, the ERA had
$16.1 billion in realized earnings plus $2.3 billion in
unrealized gains. Out of the $16.1 billion, APFC is already
setting aside $2.9 billion for the FY 20 POMV draw, leaving
behind approximately $13.2 billion.
MS. RODELL turned to slide 13, entitled "Use of Fund Earnings
from ERA Since Inception," and said that the slide illustrates
converting a non-renewable resource, such as natural resource
development, into a renewable resource for the benefit of
Alaskans in a multitude of ways. Out of the ERA, since its
inception 42 years ago, APFC has paid $27.8 billion in dividend
transfers, GF appropriations, and Alaska capital income
transfers. She reminded the committee that only $16 billion in
royalties have come into the fund to generate this activity.
Transfers from the ERA to the principal - the $4 billion in ERA
special appropriations and inflation proofing - has totaled an
additional $20.6 billion. She concluded that from the $16
billion in royalties that was saved, APFC has generated $48.4
billion in activity between savings and economic activity in the
distribution throughout the state. In addition, there are
unspent realized earnings in the ERA of $13.7 billion.
CO-CHAIR FIELDS asked for the best way to articulate the
tradeoff that exists regarding draining the ERA to pay for a
dividend today versus the future value of the funds.
MS. RODELL responded that it is important to distinguish between
a transfer to the principal versus a payment; the recognition is
that money in the principal will continue to generate the same
return that the principal is generating today. She stated,
"That income flow of ... a little over $2 billion is still going
to happen. It just doesn't happen and compound the ERA."
CO-CHAIR FIELDS clarified his question: "What's the opportunity
cost of taking close to $2 billion out of the ERA and dispersing
it versus leaving it in the permanent fund, such as in the
principal, where it can earn returns?" He said that he would
like his daughter to receive healthy PFDs long into the future.
MS. RODELL replied that it is similar to saving for a child's
college education versus buying school supplies: both are very
important; the school supplies are important for today but they
only last one school year; the college education is something
the child will use throughout his/her career and into adulthood.
She maintained that as Alaskans contemplate the tradeoff, they
need to recognize what is important today, but also what is
important for their children in the future.
4:44:39 PM
CO-CHAIR KREISS-TOMKINS mentioned the many discussions among
legislators as to the appropriate amount to hold in the ERA. He
asked Ms. Rodell to speak to the considerations that she
recommends the legislature keep in mind when deciding the right
amount of funds to keep in the ERA.
MS. RODELL opined that intergenerational equality must be
considered; it speaks to the permanent fund belonging to all the
people of Alaska. She said that the challenge for legislators
is to determine how to "think through that." She maintained
that the state has a very important role in people's lives in
Alaska; Alaskans rely on the state for many services; they rely
on the state for quality education, public safety, clean water,
roads, and much more. She asserted that the decision regarding
how much to spend for the benefit of every Alaskan currently
alive versus those yet to come is a difficult one.
CO-CHAIR KREISS-TOMKINS asked, "Why have an ERA? ... What would
be lost if the ERA were merged into the principal?"
MS. RODELL referred to the constitutional language and said that
there must be an accounting for the income and a receptacle.
The GF is the receptacle. She stated that the constitutional
language creating the ERA could be repealed; there could be a
monthly settlement with annual transfers of income to GF; and
this was the procedure in the early years of the fund. She said
that in terms of what would be lost, the ERA would not be
invested in the same way as the principal; that vehicle for
investment would not be available. The challenge for the APFC
Board of Trustees would be asset allocation of the principal and
coping with big market losses. Because the principal can't be
spent, money would not be transferred to GF during a time of
considerable losses; APFC would need to wait until the market
recovered. She said that in the years after 2009, the permanent
fund was able to rebuild from the losses incurred in 2007 and
2008.
REPRESENTATIVE STORY asked for a recommendation of the "cushion"
that would be advisable for the ERA.
MS. RODELL stated that APFC does not have a recommendation on
the amount that should remain in the ERA.
4:49:35 PM
MS. RODELL stated that the information on slide 14, entitled
"Uses of Corporate Activity," ties what APFC does to what
Alaskans depend on it to do. She relayed the information, which
read as follows [original punctuation provided]:
square4 The ERA is established in Alaska Statutes as an
account to hold the realized earnings from the
Permanent Fund's investment portfolio, and is
subject to legislative appropriation.
square4 SB 26, CH 16 SLA 18 established a POMV rules
based structure for Fund withdrawals a
percentage of the average market value of the
Fund for the first five of the preceding six
fiscal years.
square4 Inflation Proofing AS 37.13.145 (c) protects the
future value of the Principal by transferring a
portion of the earnings to the Principal to
maintain the long term sustainability of the
Fund.
square4 APFC's operations and investment management of
the Fund's assets are supported by the ERA.
square4 Agencies working on the collection of royalties
also receive appropriations from the ERA.
MS. RODELL referred to the chart on slide 14 to relay the
following information: In FY 19, APFC activities and investment
decisions generated $2.7 billion as POMV; it generated $942
million for inflation proofing, which was moved from the ERA to
the principal; the APFC operations budget was $18 million;
investment fees were slightly over $150 million; APFC funded
$2.6 million to the Department of Law (DOL) and $6 million to
the Department of Natural Resources (DNR) for collecting
royalties; and $94.5 thousand was paid to the Department of
Revenue (DOR). MS. RODELL pointed out the FY 20 approved House
operating budget appropriations on the chart.
MS. RODELL turned to slide 15, entitled "POMV - SB 26, CH 16 SLA
18," which read as follows:
Percent of Market Value:
Draw of the average market value of the Fund for the
first five of the preceding six fiscal years, subject
to annual appropriation by the Legislature.
square4 5.25% - Effective July 1, 2018 (FY19)
square4 FY19 5.25% POMV = $2.7 billion
square4 FY20 5.25% POMV = $2.9 billion
square4 FY21 5.25% POMV = $3.1 billion estimate
square4 5.0% - Effective July 1, 2021 (FY22)
MS. RODELL added that there is a one-year lag in the calculation
of POMV, which allows both APFC and the legislature to plan:
the legislature knows the amount of revenue available for
budgeting; and APFC can plan investment strategies around
liquidating money when needed.
CO-CHAIR FIELDS asked Ms. Rodell to explain how a draw in excess
of the POMV will reduce the value of PFDs over time; in other
words the question is, Why does taking more money out of the ERA
and permanent fund today reduce the amount of money that is paid
out in PFDs in future years?
MS. RODELL explained that when money is taken out, there is less
money to invest, therefore, less opportunity for the money to
generate earnings. She said that the possibility is that over
time, as the permanent fund is spent down, there is less
invested and insufficient earnings to pay dividends.
4:53:49 PM
CO-CHAIR KREISS-TOMKINS asked whether without the one-year lag,
the POMV would be calculated using the average of the preceding
six fiscal years instead of the first five of the preceding six
fiscal years.
MS. RODELL answered that according to current statutes, earnings
are calculated based on five years ending June 30; the fifth
year's balance on the market value would not be known until June
30, 2019. She maintained that without the lag, there would be
volatility and uncertainty in the draw from the fund.
CO-CHAIR KREISS-TOMKINS mentioned the budget passed by the
Senate with a $1.2 billion deficit; drawing on the ERA is a
possible source of money to balance the budget. He asked
whether drawing on the ERA would go against the POMV structure
that the legislature has established.
MS. RODELL stated that Senate Bill 26 [passed during the
Thirtieth Alaska State Legislature, 2017-2018, and signed into
law 6/27/18], established rules for APFC such that anything in
excess of a 5.25 percent POMV draw - in excess of the $2.9
billion - would go against the agreement made through the
passage of Senate Bill 26.
CO-CHAIR KREISS-TOMKINS asked what effect it would have on
APFC's approach to managing assets, if the legislature does
break the POMV structure by taking more money than it should out
of the permanent fund.
MS. RODELL replied that if APFC were faced with investing to an
unknown liability, it would have to take a more conservative
investment allocation. She explained that APFC is focused on a
long-term view: "it's not about what's available on July 1st,
it's about making sure that there is a resource there for a very
long period of time - in perpetuity; it's why it's called the
permanent fund." She stated further that to create permanence
for future generations and with uncertainty in the draws, APFC
must consider separate allocations. She said that the ERA does
not have its own strategy or investment mandate; it is an
account collecting income. She encouraged the legislature to
give direction to the board of trustees, if it wants to go
against Senate Bill 26. The mandate of the trustees is to
invest all the funds for the permanent benefit of Alaskans; it
is difficult to plan for unstructured draws and balance the
long-term illiquid investment strategy with the shorter-term
highly liquid more conservative strategy.
4:58:51 PM
CO-CHAIR KREISS-TOMKINS asked for confirmation that if the
legislature takes more than the 5.25 percent under the POMV
structure, it would create uncertainty for APFC in managing the
permanent fund assets and result in less earnings due to a more
conservative approach in investment favoring liquid assets.
MS. RODELL responded, "That is an accurate summary."
REPRESENTATIVE LEBON asked for comment on quarterly payouts of
PFDs instead of annual payouts. He said that public comment has
informed him that the PFD is used to purchase the necessities of
life.
MS. RODELL answered that the question of the operational effect
of quarterly payouts is better directed to the Permanent Fund
Dividend Division and DOR. She maintained that quarterly
payouts would not have any effect on APFC from a cash and
investment management perspective.
CO-CHAIR KREISS-TOMKINS mentioned that there are difficulties
with quarterly payments for the division.
5:01:39 PM
REPRESENTATIVE STORY asked for confirmation that in addition to
using more conservative investment strategies, an unstructured
draw would reduce the fund due to less money generating
interest.
MS. RODELL answered, "That is correct."
REPRESENTATIVE STORY asked the amount of investment money lost
for every $1 billion taken out of the fund.
MS. RODELL replied that pulling $1 billion out of the fund, not
only loses the percent return on that $1 billion, but the
compounded interest generated by reinvested earnings.
5:03:30 PM
REPRESENTATIVE HANNAN stated that when the legislature
previously discussed Senate Bill 26, creating the POMV draw at
5.25 percent for the first three fiscal years, it was in
conjunction with having an additional revenue stream for state
operations through a progressive income tax - to be fully
implemented [in FY 22], when the POMV dropped to a 5 percent
draw. She offered that it is now the second fiscal year of the
5.25 percent POMV draw, and the legislature has not discussed
additional revenue streams. She asked how long a 5 percent draw
could be sustained before APFC became concerned.
MS. RODELL answered that due to the variables of state spending,
she cannot offer an opinion. She relayed that the board has
endorsed a 5 percent POMV draw since 2003; it is comfortable
with that level draw.
CO-CHAIR KREISS-TOMKINS clarified that the income tax failed the
Senate in 2017; therefore, Senate Bill 26 was passed without any
immediate promise of [additional] revenue.
MS. RODELL moved on to the topic on slide 16, entitled
"Investment of the Fund." She reviewed the bullets on slide 17,
entitled "Allocation Structure," which read as follows:
square4 The asset allocation structure is organized by
growth and income strategies, as well as
liquidity objectives.
square4 This strategic categorization provides a
framework for ensuring that investment return
targets are commensurate with the risks
undertaken.
MS. RODELL stated that "growth" strategies are comprised of the
following: tradeable highly liquid public equities - or stocks;
and illiquid investments - private equity, absolute return or
hedge funds, and allocation strategies - which are risk
mitigation strategies for liquidity or foreign exchange needs.
She discussed "income" strategies as follows: tradeable liquid
fixed income plus - or bonds - and cash; and illiquid assets -
direct real estate and infrastructure investments. These are
assets that it would take considerable time to sell.
5:07:00 PM
MS. RODELL referred to slide 18, entitled "Diversified Assets
and Returns," and emphasized the importance of a diversified
portfolio to mitigate risk. Prior to 2005, there was a
statutory list of permitted investments; in 2005, the statute
was repealed, and the Prudent Investor Rule was instituted.
Currently the portfolio is distributed across many different
asset classes; in recent years, risk has declined as returns
have increased.
MS. RODELL reviewed the performance of the asset classes since
FY 16, as shown on the chart on slide 18: private equity and
special opportunities - APFC's largest growth generator; public
equities - reflecting 11 years of a "bull" market; total fund
returns; infrastructure and income opportunities; absolute
return; real estate; asset allocation; and fixed income plus.
CO-CHAIR KREISS-TOMKINS asked whether the private equity and
special opportunities asset would be most affected under a POMV
overdraw.
MS. responded yes, the value of private equity comes from being
able to make a 7-15-year commitment; without being able to make
those long-term commitments, money would need to be moved to
more liquid asset classes with lower levels of return.
CO-CHAIR KREISS-TOMKINS commented that if the legislature
creates uncertainty by overspending, the permanent fund would
earn less money.
MS. RODELL responded that the board of trustees would need to
take that into serious consideration.
REPRESENTATIVE HOPKINS referred to slide 17 and asked for the
difference between growth and income.
MS. RODELL explained that growth assets are ones that change in
underlying value and the value increases as a result of
scalability. She gave the example of an investment in a
business: the business increases in value; the valuation of the
business is marked up based on its ability to increase
distribution and increase its business propositions. Income is
money generated each month - such as with real estate; the
underlying value of the asset is not increasing due to changes
in the business plan of the underlying asset.
5:12:06 PM
MS. RODELL turned to slide 19, entitled "Where We Invest," to
demonstrate investments around the world. The APFC invests
globally, not just in the U.S., by looking at the effects of
global economic activity. She stated that the median age in
Africa is 19; the median age in India is 29; the median age in
the U.S. is 38. Growth comes from large populations of young
workers coming into the economy; it is important to look for
investment opportunities outside the U.S. where growth will
occur. The return on those investments comes back to Alaska to
benefit the state.
REPRESENTATIVE HOPKINS asked about the APFC investing in Alaska
and whether there are limits on that.
MS. RODELL relayed that the statutes specify that the APFC can
only invest in Alaska for financial commercial reasons; and the
investments must generate returns as good as or better than
investments outside of Alaska. She said that there is a limit
to the opportunities in Alaska for investment. The board of
trustees believes it is important to find and encourage
investment in Alaska. In September 2018, APFC set aside $200
million for an emerging manager program to fund and seed
investment managers to look for companies in which to invest;
the program created a one-step removal from APFC to provide a
clean non-political review process associated with the
investments. The board also targeted an aspirational goal of 5
percent of the overall fund invested either in Alaska or in
Alaska-based businesses, even if the investment was outside of
Alaska.
REPRESENTATIVE HOPKINS asked whether the 5 percent goal has been
achieved.
MS. RODELL responded that about 2 percent of the fund is
invested in managers in Anchorage - McKinley Capital Management
and Alaska Permanent Capital Management - and APFC owns real
estate in Juneau. She stated that the 2 percent does not
include any money managed directly by APFC staff. She added
that including the fixed income portfolio managed internally
would bring the percentage of the fund that is being managed in
Alaska up to 25 percent.
REPRESENTATIVE HOPKINS clarified that Ms. Rodell is referring to
money managed in Alaska - for the 5 percent goal - not money
invested in Alaska.
MS. RODELL answered, "That is correct." She added that it can
include money invested in Alaska.
REPRESENTATIVE HOPKINS asked whether the consideration of
limiting funds invested in Alaska to spark its economy is
because it would not provide a buffer in the event the state's
economy suffered.
MS. RODELL agreed. She reiterated the importance of geographic
diversification for investment.
5:16:50 PM
REPRESENTATIVE LEBON asked Ms. Rodell to describe a typical
investment in Alaska.
MS. RODELL responded that investment in Alaska could mean
investment in an Alaska business, investment in equity, or
investment in private debt. She explained that there is a layer
of debt that is too big or risky for banks, but not big enough
to access the corporate bond market. She said there is
opportunity to invest in that private debt market. She
maintained that the challenge in Alaska is that investments are
small, and because investments are labor intensive, the amount
of work is the same no matter the amount of money invested. She
asserted that given its limited resources, APFC must focus on
"generating the biggest bang for the buck," which would favor
the $50 million investment outside of Alaska over the $500,000
investment in Alaska.
REPRESENTATIVE LEBON offered that the lending capacity of the
Alaska banking community, the Alaska Industrial Development
Authority (AIDEA), and the Alaska Housing Finance Corporation
(AHFC) is robust in meeting the needs of the state.
MS. RODELL agreed.
REPRESENTATIVE VANCE mentioned that nothing stimulates the
Alaska economy like distribution of the PFD; therefore, direct
investment in Alaska is unnecessary when dividends are
distributed to Alaskans.
5:20:01 PM
MS. RODELL continued with slide 20, entitled "Management of the
Fund," which read as follows:
The Board of Trustees continue to work towards an
optimal mix of in-house versus external management
capabilities based on resources and opportunities.
In-House Management Allows for:
square4 Alignment of investment goals and mandates
square4 Increased flexibility in timing/tactical
decisions
square4 Lower fees with investment benefit of active
management
MS. RODELL said that since FY 16, APFC has been able to increase
internal management from 34 percent to 40 percent; funds were
appropriated by the legislature for a total of 14 more
positions.
CO-CHAIR KREISS-TOMKINS referred to the table on slide 14, which
specifies $18 million appropriated for APFC operations [in FY
19] and $150 million appropriated for APFC investment management
fees. He said that regarding the 60-40 split for FY 18 shown on
slide 20, $18 million is used to manage 40 percent of assets
internally and $150 million is used to manage 60 percent of
assets externally. He asked for comment on the efficiencies of
in-house management versus external management.
MS. RODELL clarified that although APFC may have the internal
resources to make investment decisions, it does not have the
resources to do the ongoing due diligence day-to-day. As an
example, for real estate, APFC uses property managers and
investment managers to monitor the investments daily. She said
that APFC has managed its fixed income portfolio since
inception; the portfolio represents 22 percent of the allocation
and is the responsibility of five individuals. If those five
individuals were replaced by external managers, there would be
an immediate increase of $15 million to the investment fee
budget. She offered that because the fund is growing, fees will
grow; however, they have been relatively stable on a percentage
basis.
5:25:18 PM
MS. RODELL turned to slide 21, entitled "Awards &
Accomplishments," and noted that all APFC employees are in
Juneau. She reviewed the awards and accomplishments, which read
as follows:
square4 Marcus Frampton, CIO, named one of Private Equity
International's 40 under 40 Future Leaders of
Private Equity
square4 Jared Brimberry, Senior Portfolio Manager was
selected as one of Private Debt Investor's (PDI)
Rising Stars 2019
square4 Selected as North American Limited Partner of the
Year for 2018 by Private Equity International
square4 APFC received dual nominations for 2018
Partnership of the Year for Institutional
Investor's Allocators' Choice Awards and won the
award for our Capital Constellation Partnership:
square4 Private Market Partnership, Capital
Constellation - won
square4 Public Market Partnership, Middle East
Africa South Asia (MEASA) Fund with McKinley
Capital - nominated
square4 PEI's Private Debt Magazine recognized APFC in
their inaugural 30 Most Influential Investors in
Private Credit
square4 Recognized as North American Private Equity
Institutional Limited Partner Investor of the
Year for 2017 by Private Equity International
square4 Awarded Institutional Investor's Sovereign Wealth
Fund of the Year in Hedge Fund Investments in
2017
MS. RODELL maintained that the awards and accomplishments are
important for generating excitement around the permanent fund
and attracting business; they demonstrate that APFC is good at
what it does and is the partner of choice for many people. In
addition, APFC can be selective in investment choices and
ultimately generate better returns.
MS. RODELL moved on to slide 22, entitled "Fund Value and
Returns," to point out the growth of the fund over time despite
unstable market returns. She mentioned that the graph
demonstrates that APFC is invested for the long-haul; it must
withstand some very volatile conditions; but the overall
trajectory is positive. Since 2005, when APFC could diversify
the portfolio into a many different asset classes, the growth of
the fund greatly accelerated.
MS. RODELL referred to slide 23, entitled "Fiscal Year 2018
Performance as of June 30th, 2018," to focus on the 5-year
performance of the fund, which returned 8.91 percent. She
compared that percentage to the "Passive Index Benchmark" of
6.81 percent, which is the rate of return if the fund was
invested in index funds - 60 percent stock, 20 percent bonds, 10
percent real estate (RE), and 10 percent treasury inflation-
proofed securities (TIPs). She maintained that the statistics
show that there is value in having active management of the
fund. She said that the "Performance Benchmark" is the
benchmark against which the managers are measured for their
respective asset classes. The benchmark was 7.55 percent, which
indicates that the actions made by APFC staff generated an
additional 1.4 percent in value for the 5-year period; and 1
percent of $65 billion is approximately $60 million. She stated
that the "Total Fund Return Objective" is the Consumer Price
Index (CPI) plus 5 percent - that is, keeping pace with
inflation and earning a steady growth of 5 percent. Over the 5-
year period that rate was 6.54 percent; the APFC performance
exceeded that rate as well.
5:32:00 PM
MS. RODELL moved on to slide 24, entitled "Value Generated," and
relayed the following information:
FY 18
Revenues $ 5,671,500,000
Operating/Investment Expenses $ 138,800,000
Value Generated Per Day (based on 251 active trading
days through FY18)
Total Fund $ 5.67B/251 = $22.6M per day
Statutory Net Income $ 6.3B/251 = $25.2 M per day
APFC staff is actively engaged in making direct
investments and overseeing our external manager
partnerships:
square4 APFC = 57PFT, 2PPT, 2 Summer Interns
square4 28 External Public Equities Managers
square4 5 Real Estate Advisors
square4 Private Markets Partnerships:
square4 Fund to Fund/Co-Investments/Direct
Investments
MS. RODELL referred to slide 25, entitled "Additional
Resources," and mentioned that there is a great deal of
information available on the APFC website - www.apfc.org.
5:33:38 PM
ADJOURNMENT
There being no further business before the committee, the House
State Affairs Standing Committee meeting was adjourned at 5:34
p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Permanent Fund 101 APFC Presentation.pdf |
HSTA 5/7/2019 3:00:00 PM |
Permanent Fund 101 - APFC Presentation |