Legislature(2005 - 2006)
03/06/2006 09:02 AM House W&M
| Audio | Topic |
|---|---|
| Start | |
| Overview of Permanent Fund Investment Confidentiality Policies | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
March 6, 2006
9:02 a.m.
MEMBERS PRESENT
Representative Bruce Weyhrauch, Chair
Representative Norman Rokeberg
Representative Paul Seaton
Representative Peggy Wilson
MEMBERS ABSENT
Representative Ralph Samuels
Representative Max Gruenberg
Representative Carl Moses
COMMITTEE CALENDAR
OVERVIEW OF PERMANENT FUND INVESTMENT CONFIDENTIALITY POLICIES
- HEARD
HOUSE BILL NO. 418
"An Act relating to a mining production tax; relating to the
mining license tax; relating to production royalties on
minerals; relating to exploration incentive credits; and
providing for an effective date."
- BILL HEARING CANCELED
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
MIKE BURNS, Executive Director
Alaska Permanent Fund Corporation (APFC)
Juneau, Alaska
POSITION STATEMENT: Provided information on APFC investment
confidentiality policies.
LAURA ACHEE, Communications Director
Alaska Permanent Fund Corporation (APFC)
Juneau, Alaska
POSITION STATEMENT: Provided information on APFC investment
confidentiality policies.
ACTION NARRATIVE
CHAIR BRUCE WEYHRAUCH called the House Special Committee on Ways
and Means meeting to order at 9:02:16 AM. Representatives
Weyhrauch and Wilson were present at the call to order.
Representatives Rokeberg and Seaton arrived as the meeting was
in progress.
^OVERVIEW OF PERMANENT FUND INVESTMENT CONFIDENTIALITY POLICIES
[Contains discussion of HB 215.]
9:02:25 AM
CHAIR WEYHRAUCH announced that the only order of business would
be the overview of the permanent fund investment confidentiality
policies. He explained that it is not the purview of the House
Special Committee on Ways and Means to be the oversight for the
permanent fund; however, due to present scheduling conflicts,
this committee has the opportunity to question the Alaska
Permanent Fund Corporation (APFC) on its current confidentiality
policies which may guide its investment decisions. He informed
the committee that recent press has raised questions on APFC
restrictions regarding the release of information.
Additionally, he relayed that there has been some interest
expressed by the corporation's administration to invest in the
gas pipeline.
9:05:45 AM
MIKE BURNS, Executive Director, Alaska Permanent Fund
Corporation (APFC), expressed his belief that [APFC] would like
the public to be fully aware of what the corporation is
presently doing. Additionally, he said that there is nothing
confidential today that wasn't confidential in prior years. He
then provided historical background, relaying that several
statutes created the corporation and empowered it to manage
those funds within the permanent fund. He referred to one of
the statutes, AS 37.13.200, which has been in effect since 1980
and which read:
Information in the possession of the corporation is a
public record, except that information that discloses
the particulars of the business or affairs of a
private enterprise or investor is confidential and is
not a public record. Confidential information may be
disclosed only for the purposes of an official law
enforcement investigation or when its production is
required in a court proceeding. These restrictions do
not prohibit the publication of statistics presented
in a manner that prevents the identification of
particular reports, items, persons, or enterprises.
9:07:24 AM
REPRESENTATIVE SEATON, referring to the different reports from
[fund] managers the legislature receives, asked whether or not
these were not considered part of the business section.
MR. BURNS said that this is dependent upon the particular
managers with whom the corporation has a contractual
relationship which would be those who manage non-public assets
in specifically the private equity area and in absolute return.
He relayed that the managers' strategies are their intellectual
property and very important to them. The amount of money
committed to the strategies, he explained, in addition to the
identification of the managers' personnel, is information not
made available to competitors. He highlighted that
approximately 75 to 80 percent of the returns in the alternative
investments asset class, "come from the top third of the
managers." He opined that it's very important for [APFC] to be
associated with the best people in the field and that "the
permanent fund is the kind of client people want desperately -
we're large, we have a good reputation - so we have people in
all asset classes going out of their way to have us as their
client or try to make us their client." He explained that since
it's a seller's market for alternative investments, it's very
important for [APFC] to invest with the top third of the
managers. He said that these managers are the ones that
consider their information most confidential because it's what
"their success, their intellectual property is built upon." He
informed the committee that this is the reason APFC accommodates
these managers as allowed under the statute of 1980.
9:09:52 AM
REPRESENTATIVE SEATON rephrased his question asking if the total
gross or net return shown on the state's monthly [statements] of
assets, provided by a particular manager, is information
available for the public as well.
MR. BURNS said it is and that this information is available
online as well. He explained that most of the fund's returns
are based against a benchmark and that managers are directed to
manage a fund against others such as the S&P 500, the S&P 1000,
or the Lehman Aggregate Bond index. With absolute returns, he
clarified that managers are hired to manage risk with no big
upside or downside but rather with a "narrow band of returns."
He relayed that the desired target for the fund's absolute
return is the one-month London Interbank Offered Rate (LIBOR)
which he defined as an "overnight trading of funds between major
banks on a worldwide basis" and is very similar to a treasury
bill return. More specifically, he described the desired target
as being LIBOR plus 400 basis points or 4 percent. He
highlighted that although targeted earnings were set for 7.31
percent, the fund has earned 9.61 percent, since inception, from
bonds earning 3.95 percent. Furthermore, he relayed that the
standard deviation for the bond portfolio, which had earned the
3.95 percent, was 2.83 percent, and then compared this to the
standard deviation of 2.67 percent for the fund's absolute
return which had earned the 9.61 percent. These percentages
show, he said, that the APFC exceeded its goal, more than
doubled the fixed-income return, and did so with less risk.
9:14:33 AM
CHAIR WEYHRAUCH, referring to the [APFC] Resolution 05-04
adopted in November 2005, inquired as to why it was so recently
adopted if [disclosure] policies were in place for so long. He
asked whether it was done "in reaction to something."
MR. BURNS explained that APFC was beginning to receive an
increased amount of inquiries on this topic and was advised by
its counsel that it had the statutory responsibility to review
all public records requests. Given this, and the infrequent
amount of time the board meets each year, he relayed that the
resolution was instated to empower him, as the corporation's
executive director, to respond to these records requests.
Following this, regulation 15 AAC 137.610 was adopted which he
opined as a more straightforward means than solely by
resolution. Furthermore, he said that's it "almost identical to
the one that the state's pension board has had on the books
since 1996."
CHAIR WEYHRAUCH, referring to the aforementioned statute, Sec.
37.13.200, asked whether the State of Alaska would be considered
as an "investor" given that it "wants to invest millions of
dollars in gas pipeline.
MR. BURNS said that this hasn't yet been addressed by [APFC]
counsel and expressed his belief "that at this point in time,
probably the confidentiality ... would ... derive from the
Stranded Gas Act rather than these organic statutes of
[APFC's]." He informed the committee that APFC is currently in
the request for proposals (RFP) process for hiring a fiduciary
to advise the corporation in the event it is asked to be a
participant in the gas pipeline project. He described the three
sections of the RFP: education of the board on infrastructure
investments such as the one for the gas pipeline, examining the
financial attributes and returns of the investment, and
determining how the investment would fit with APFC's current
portfolio.
9:18:53 AM
REPRESENTATIVE SEATON, referring to the possibility that the gas
pipeline may or may not be regulated by the Federal Energy
Regulatory Commission (FERC), asked whether he was correct in
presuming that this would be an issue upon which the APFC and
its fiduciary would focus.
MR. BURNS said that discussions regarding FERC regulations would
likely be discussed if and when APFC is presented with a
proposal to [invest in the gas pipeline] - something that has
not yet occurred.
REPRESENTATIVE ROKEBERG said that it would be "news to him" if
[the gas pipeline] was not FERC-regulated.
REPRESENTATIVE SEATON relayed that prior testimony "from the
all-Alaska line was that it was available for the $18 billion
underwriting" but that they would not [necessarily] be FERC-
regulated. He suggested that this could affect investment
decisions.
9:20:26 AM
REPRESENTATIVE WILSON said that she has heard discussions
suggesting that another permanent fund be started for the gas
pipeline which would be used to pay for state services. If this
happens, she asked how it would affect APFC's investment
decisions.
MR. BURNS said that in the event the corporation is asked to
invest in the gas pipeline, it would have to determine whether
or not the investment is prudent given the many possible
variables. Given that 25 percent of royalties are currently
diverted to the [permanent] fund, he speculated that this is
"probably totally independent of the investment characteristics
of investing money in a pipeline." Mr. Burns continued with his
prepared remarks relaying that there are those who have
considered the APFC's investment choices "out of the mainstream"
yet the trustees have made modest investments work. He informed
the committee that the current asset allocation to absolute
return for the permanent fund is 4 percent and that its asset
allocation to private equity is also at 4 percent. Similarly,
he said, the state's pension fund has 3 percent allocated to
absolute return and 6 percent to private equity. He then
highlighted the investment percentages for several universities:
The Massachusetts Institute of Technology (MIT) with 12.7
percent in private equity and 18.8 percent in other alternative
investments; the Yale Endowment with an absolute return of 26.1
percent and private equity of 14.5 percent; and the University
of Alaska Foundation with targeted alternative investments of 25
percent. He opined that in comparison, both the permanent fund
and the state pension fund are on the low end. He said, "If you
had to give up 200 basis points to not be in these asset
classes, that aren't as transparent as some of the others, that
it would be worthwhile." He pointed out that 200 basis points
on 8 percent of the permanent fund is well over $50 million a
year and expressed his belief that the corporation is investing
very prudently in a "tough" world.
9:25:53 AM
REPRESENTATIVE ROKEBERG sought confirmation of his understanding
that the targeted rate for the approximate $33 billion total
corpus of the funds is 8 percent, with the combined percentages
for private equity and absolute return, and that a 200 basis
points portion of this 8 percent yields $50 million per year.
MR. BURNS said this was accurate and that the corporation deals
"in very big numbers."
9:27:02 AM
CHAIR WEYHRAUCH, noting that there is a presumption that
[permanent fund] information should be made public, asked Mr.
Burns in what situations does an investing entity require that
information be kept confidential from the public and when, if
ever, is it decided that the information be made available to
the public.
MR. BURNS explained that the only areas requiring
confidentiality are those pertaining to absolute return and
private equity - the strategies behind which are the
intellectual property of the managers. He informed the
committee that the only other possible area in which the APFC is
not as "forthcoming on a timely basis" is during the negotiation
stage of real estate transactions. He said that once the
transaction is complete, it becomes available information for
the public. In response to Chair Weyhrauch, he explained that
the initial need for confidentiality is due to today's
competitive market and that the APFC does not want to offer more
for property than necessary. He relayed that the corporation is
guided by its advisors and bids according to the recommended
range, cap rate, and return - information better kept
confidential from possible competitors.
CHAIR WEYHRAUCH inquired as to whether the amount the fund is
willing to invest in [real estate] transactions is kept
confidential from the public. He clarified that one possible
concern of the public is whether the fund is putting "an
inordinate amount of money at risk on secret deals and when
would the public ever have an opportunity to weigh in on that,
except after the fact when things are disclosed." He said it
was his understanding that the overall fund is managed by the
"prudent-investor rule" and asked Mr. Burns to provide more
explanation on the need for the APFC's "cone of silence."
MR. BURNS said that the public can access the fund's annual
allocations on the APFC website. This year's real estate
allocation, he relayed, is 10 percent of the fund and falls into
two categories: privately-owned real estate and real estate
investment trusts which are publicly traded securities.
9:30:53 AM
REPRESENTATIVE ROKEBERG asked whether knowing which institutions
are contracted by the APFC is public information.
MR. BURNS explained that the corporation has what it refers to
as a "gatekeeper," Pathway [Capital Management, LLC], which
makes committed partnerships. The amount committed to these
partnerships is public information at times and other times not,
depending upon where the partners are in the transactions.
REPRESENTATIVE ROKEBERG, in noting the concern for "lack of
transparency and lack of knowledge" regarding which investment
medium is used, suggested that the transactions Mr. Burns is
describing parallels real estate transactions which begin with
an initial period of confidentiality and then disclosed to the
public once the transactions are complete.
9:33:27 AM
LAURA ACHEE, Communications Director, Alaska Permanent Fund
Corporation (APFC), relayed that the APFC quarterly publishes
the names of the underlying partnerships in the private equity
portfolio in addition to the amounts committed to them. What
isn't published, she said, is the amount these partnerships have
currently invested. She explained that with absolute returns,
the names of the partnerships are not published because "those
relationships that they have with those absolute return managers
are considered their proprietary information."
REPRESENTATIVE ROKEBERG suggested that an argument could be made
that there is disclosure on "where the funds are, who has
responsibility for them and not the nitty gritty [details]," and
opined that it's not like buying a mutual fund which
periodically lists the stocks in an equity portfolio.
9:34:41 AM
REPRESENTATIVE SEATON asked whether Real Estate Investment
Trusts (REIT) [transactions] are confidential.
MR. BURNS explained that these are publicly traded securities
and not confidential. He relayed that recently APFC liquidated
a fair number of REITs at almost $300 million. Since the REITs
operate similarly to small cap stocks, having little liquidity,
the selling of such investments, though public, is not broadcast
at large.
REPRESENTATIVE SEATON requested Mr. Burns define the private
equity asset allocation and what it entails.
MR. BURNS informed the committee that the corporation views
private equity as having similar risk characteristics as public
equity. However, he explained that with private equity
investing "you are paid for the illiquidity" of lengthier
investment periods. He opined that liquidity is not a problem
for the permanent fund. Additionally, he highlighted that
private equity investors have investment access to roughly
50,000 or so private businesses which are not available to the
public equity market.
REPRESENTATIVE SEATON said he was trying to grasp what "private
equity" means for the public.
MR. BURNS provided an example of one of the largest transactions
which involved the Ford Motor Company sale of the Hertz Rental
Car Company to a consortium of private equity managers. He then
explained that in private equity, there is something called "the
liquidity event which is akin to the pay off" and the point at
which private equity managers decide whether to make a stock
public, resell it or other decisions made according the
determined value.
REPRESENTATIVE SEATON expressed his belief that the public has
not been fully informed as to the kinds of [private equity] in
which the permanent fund invests.
MR. BURNS further attempted to clarify this by assuming that the
permanent fund had been involved with the aforementioned
purchase of the Hertz Rental Car Company. Any company doing so
would invest through the private equity general partnership
which purchased the rental car company, he relayed. The
partnership's actions, he said, would be driven by the possible
financial aspects of the company it purchased, such as how much
debt can it service as well as determining what the appropriate
capital structure would be.
9:40:06 AM
MS. ACHEE explained that there are public companies that trade
on the public stock and bond markets as opposed to private
companies that might not want to go public to sell shares and
yet still require funding. Private equity, she said, is
investing in private companies that haven't gone public.
MR. BURNS provided an additional example: the CSX [Corporation]
sale of Sea-Land when it was determined that this company no
longer met CSX Corporation's hurdle rate for investment and so
was sold to a private equity partnership.
9:42:20 AM
REPRESENTATIVE ROKEBERG observed that there is a plethora of
private capital availabilities. He referred to Mr. Burn's
earlier mention that it is currently a seller's market for those
in the business of seeking management firms and noted the
importance of APFC being able "to recruit the very best." He
remarked that "many of the very best companies wouldn't even
undertake us if we had, for example, greater disclosure of their
business activities; they wouldn't even consider taking Alaska
up as a client." He then asked Mr. Burns to expand on this.
MR. BURNS, in noting that 75 percent of the APFC's returns are
in the top third, said, "it's obvious that's where we want to
be." He relayed an instance when a potential absolute return
manager notified the APFC board at the last minute that it did
not wish to be considered for a position "specifically because
of the disclosure [issue]." Given the fact that the permanent
fund virtually requires no additional costs, he remarked on how
[unlikely] it is to have an [absolute return manager] "walk away
from a very substantial fee from [APFC]" because of possible
concern that the corporation would "disclose their intellectual
property."
9:45:21 AM
REPRESENTATIVE ROKEBERG, as the sponsor of HB 215, legislation
which passed last year, commented that he has heard it said this
legislation allows APFC greater authority to transact its
business with more confidentiality. He said that he "rejects"
this belief and was pleased to hear Mr. Burn's description of
the yields and returns to the State of Alaska on the fund's
former fixed income portion by over 5.5 basis points. "We
accomplished the number one goal in that legislation," he said.
In noting that since its inception, the APFC has always had a
regulatory framework in which it would keep particular issues
confidential, he asked Mr. Burns to describe the historic
context of these particular issues and whether there has been
any possible change to public policy on this topic.
MR. BURNS said there has been no change to public policy. He
opined that HB 215 has been "a huge step forward for the fund
and for its asset allocation and investment ability" [and yet]
"HB 215 has absolutely nothing to do with this issue [of
confidentiality]." He informed the committee that the
confidentiality statute was passed in 1980 when the fund was
created and that nothing has been added to the regulation - one
that has been on the books since 1990. He repeated his opening
statement that "nothing is confidential today that wasn't
confidential [since inception] ...."
9:48:43 AM
CHAIR WEYHRAUCH sought confirmation that there was no connection
between the legislative change made to the "basket clause,"
which increased the investment options for the permanent fund,
and APFC's resolution which came out [later] that same year.
MR. BURNS said this is correct.
MS. ACHEE agreed and said that in her position as the project
manager who worked on the resolution and regulations, it was
made very clear to her that the APFC's Board of Trustees could
not take on any sort of authority that isn't provided in
statute. Furthermore, she relayed that the statute directs the
board to keep certain information confidential and the newly
passed regulations can only add clarification.
9:49:47 AM
REPRESENTATIVE WILSON asked why, if nothing has changed, have
all these questions come up so suddenly.
MR. BURNS opined that it's perhaps a "basic issue of
journalism."
9:51:13 AM
CHAIR WEYHRAUCH sought confirmation of his belief that there is
always a tension between the public's "right to know" and the
ability of a corporation to have reasonable return on the
public's money.
Mr. Burns agreed.
9:51:32 AM
REPRESENTATIVE ROKEBERG, referring to the March 6, 2006 "Alaska
Budget Report" in the committee packet, asked whether its editor
and publisher, Rebecca Braun would be testifying.
CHAIR WEYHRAUCH explained that she would not be testifying
because he had questions to ask of Mr. Burns regarding the
redacted portion of the report and whether this was done with
the corporation's permission or whether it divulged "public
information that would harm the state's investments if it were
not redacted."
MR. BURNS explained that determining whether information can be
redacted involves a process between the APFC lawyers and such
companies as Crestline Investors, Inc. and Pathway Capital
Management, LLC whereby these companies must provide convincing
argument that their strategies are a vital part of their
intellectual property. Otherwise, he relayed, it's APFC's
"natural instinct" to disclose information.
CHAIR WEYHRAUCH asked whether the court is "the remedy" once a
determination is made that information is confidential and not
to be released.
MR. BURNS said this is correct.
9:53:37 AM
MS. ACHEE explained that the reason some of the information in
the report was redacted is because Crestline Investors, Inc.
believed it would give away their proprietary strategies "or the
particulars of their business affairs." She relayed that they
presented their arguments to APFC's counsel who then worked
through the regulations and statutes to determine whether this
information was legitimately confidential.
CHAIR WEYHRAUCH inquired as to whether the corporation, in the
RFP process, informs potential investment managers that under
state law their information will be subject to public disclosure
unless APFC advises in writing what is not public information.
MS. ACHEE explained that APFC does not go through the RFP
process for its financial managers. She pointed out that the
corporation is just now facing these confidentiality issues
because of its recent investment in certain kinds of asset
classes; prior to that, investments primarily involved real
estate. In response to Chair Weyhrauch, she said this was not a
result of HB 215 passing but rather a result of the creation of
the 5 percent "basket clause" of 1999. She relayed that from
this point forward, APFC will need to inform asset managers at
the time of the bidding process that much of the information
they wish to keep confidential, will have to be released by
APFC. In response to Representative Wilson, she confirmed that
this is exactly the reason why one of the firms withdrew its bid
in 2004. She commented that she does not agree with all this
firm's concerns, one of which pertained to the posting of APFC
minutes on the World Wide Web where the public could read
"everything that [the firm] said."
MR. BURNS clarified that the firm was very straightforward
regarding their reasons for pulling out and that this was not
something simply inferred by APFC.
9:58:01 AM
REPRESENTATIVE ROKEBERG opined that as a public corporation,
responsibility is owed to the shareholders - the people of the
State of Alaska. He asked how Alaska compares to other state
pension funds in regard to public disclosure.
MS. ACHEE said that APFC did not research the regulations of
other states before drafting its regulations. She explained
that the APFC regulations are based on the Alaska Retirement
Management Board (ARMB) regulations and "based on the
interpretation of what the authority was granted under statute."
In discussions with other equity managers, she said it was
determined that [Alaska's disclosure policies] fall somewhere in
the middle range. She referred to two public universities
within these asset classes, both in states that require the
release of more information than Alaska requires and both having
been excluded from business dealings with private equity firms
when disclosing required information that those firms felt was
confidential.
10:00:35 AM
REPRESENTATIVE WILSON asked Ms. Achee if she was familiar with
the legislation proposed by University of Alaska last year which
would enable the university to keep more of its information
private.
MS. ACHEE said she was not familiar with this particular
legislation.
10:00:54 AM
REPRESENTATIVE ROKEBERG referred to Ms. Braun's "Alaska Budget
Report" and its mention of the notoriety of the hedge funds
following the 1998 collapse of Long-Term Capital Management. He
also noted its mention of the "famous letter" that Berkshire
Hathaway's chairman, Warren E. Buffett, sent to the fund's
shareholders in which he admitted he was to blame for the loss
of $[404] million through derivative investments. He said that
"perhaps the budget report would prefer that we get out of the
absolute return and private equity business and just put the
money in buying Berkshire Hathaway's stock."
CHAIR WEYHRAUCH expressed his belief that the legislature and
the people in the State of Alaska have put a "tremendous amount
of trust in the trustees of the permanent fund." Although
noting that the purpose of having confidentiality restrictions
is to reveal any imprudent investment practices, policies, or
transactions, he opined that APFC's practices have not been
such. He remarked that it is "politically popular" for the
legislature to respond to any uproar regarding the loss of "a
tremendous amount of money in a transaction that was kept
secret." He opined that Alaskans "want to get a return on their
investment that's reasonable and prudent and that we do not put
too many eggs in one basket." He stated his belief that
confidentiality restrictions should be placed on information in
a limited fashion and that they eventually be lifted so people
can be informed of what transpired.
10:03:42 AM
REPRESENTATIVE SEATON referred to the "disconcerting" mention of
the 13 denials [for public records requests] in Ms. Braun's
"Alaska Budget Report" and its mention that of those records
received, many were "often so heavily redacted." He inquired as
to whether the 13 denials were simply an "outright denial of
information" or that the records requested were "so specific
that it would be 100 percent redacted."
MS. ACHEE [referred to the denials as "letters"]. She then
informed the committee that although she could not remember the
exact number of letters sent, two of the them requested the 10-
day extension allowed under state law. She explained that other
letters were sent relaying that "redacted information was being
provided." In very few cases were entire documents withheld,
she relayed, and "for the most part, [APFC] provided every
single document with redactions ...."
REPRESENTATIVE SEATON referred to the Crestline Investors, Inc.
chart attached to Ms. Braun's budget report. He clarified for
the record, that although information on the individual
investments and investment partners on the chart have been
redacted, the "full totals" for costs, additions, withdrawals,
and other categories are shown.
10:05:57 AM
MR. BURNS explained that Crestline Investors, Inc. manages 14
strategies and 46 managers for APFC and "how they move money
from strategy to strategy is very important to them."
REPRESENTATIVE ROKEBERG, returning to earlier mention on the
proposed gas pipeline project, asked Mr. Burns to update the
committee on the current status of discussions between the
corporation and Governor Frank Murkowski on this topic. In
response to Chair Weyhrauch, he opined that APFC is more likely
"constrained by the prudent[-investor rule] in making any
investment." Furthermore, he expressed his belief that a cap or
a total allocation to a singular project would be a limiting
factor.
MR. BURNS relayed that concentration [in a singular project] is
"a big part" of the prudent-investment decision and one that
would require input from an outside fiduciary. He informed the
committee that APFC has no specific requests from the governor.
Mr. Burns noted that William Corbus, commissioner of the
Department of Revenue (DOR), one of the APFC's trustees,
indicated that various financing schemes have mentioned the
permanent fund as a source of capital and a potential investor.
He said that APFC is currently in the RFP process to hire an
independent fiduciary to prepare the corporation for any
forthcoming proposals. In response to Representative Rokeberg's
question regarding who requested the RFP, he explained that APFC
staff suggested the RFP process to the corporation's board. He
relayed that DOR has "made it known to [APFC], as a group, that
[the corporation] is part of [DOR's] thought process, but
there's no specific requests" to date.
REPRESENTATIVE ROKEBERG remarked that any fixed income
instruments that might result from the pipeline would be rated
by rating agencies and that standard, fixed income principles in
making investments in bonds would be followed. He then
suggested that there are really two sections of ownership on the
gas pipeline: one of private equity placement, were APFC to buy
a portion of the pipeline, anticipating equity from the pipeline
itself, and the other being the pipe itself as an entity in
shipping responsibilities. He expressed his belief that there
would be significant constraints on what the permanent fund
could do in terms of gross investment in the project and "how
that would fit in the purchase or equity position of the State
or Alaska." He concluded by saying that he wasn't sure he
understood "what value that would have other than just a
straight investment in part of the permanent fund to the state's
position."
10:11:57 AM
MR. BURNS opined that from the state's perspective, there is
great benefit to delivering its gas to market and creating
employment. However, from APFC's perspective, he relayed that
other points are evaluated such as whether the investment can
stand on its own with clear, prudent investment merits. He
remarked that there is no section in the RFP which requires that
the fiduciary consider "whether [APFC's] investment in this
[project] is for the good of the order; it's got to be for the
good of the fund, period." In response to Representative
Rokeberg, he said that APFC is currently requesting a special
appropriation from the legislature to hire a fiduciary -
approval of which would likely result in a packet of
[accompanying] legislation. He said he does not know how this
will affect APFC at this point in time.
CHAIR WEYHRAUCH observed that last year, APFC testified that it
did not need any special legislative authority to invest in the
gas pipeline, that it had otherwise met all the requirements for
fund investment such as prudent-investor rule, reasonable return
on a reasonable amount, and similar constraints.
REPRESENTATIVE ROKEBERG said he did not disagree with this.
REPRESENTATIVE SEATON explained that there are three kinds of
ownership in a gas pipeline: gas, pipeline, and shipping
volume. He asked whether APFC's RFP included an investment in
the pipe alone or of ownership in gas or in shipping volume.
10:15:38 AM
MR. BURNS informed the committee that APFC is seeking advice on
[investment] in the pipe and the transportation business, not on
gas ownership.
REPRESENTATIVE SEATON noted the two components of ownership
remaining: shipping volumes and the actual pipeline itself. He
said he imagined that the shipping volume component to be quite
different from investing in a FERC pipeline which involves a set
return on investment. Between these two components, he asked
Mr. Burns whether the RFP dealt with the pipeline only and not
ownership of shipping volume.
MR. BURNS said this is correct yet reminded the committee that
APFC has not yet been specifically asked to become involved in
any of these ownership components of the gas pipeline project.
He relayed that APFC has no expertise in marketing gas.
REPRESENTATIVE SEATON expressed his belief that it is really
important to clarify these components of ownership and suggested
that perhaps the shipping volume and gas components would be
very problematic within the structure of the permanent fund.
10:17:51 AM
REPRESENTATIVE WILSON said that she was initially concerned upon
reading the "Alaska Budget Report"; however, after hearing Mr.
Burns' testimony, she opined that [APFC] has been "really
prudent in what [it's] doing and why ...."
10:18:37 AM
CHAIR WEYHRAUCH referred to the Susitna Dam as an example of one
large, state project which [failed] "because we couldn't get a
full faith and credit of the permanent fund to support it." In
conclusion, he informed the committee that in researching the
California Public Employee's Retirement System (CalPERS), he
learned that it does allow confidentiality restrictions to be
imposed on similar kinds of information.
10:19:47 AM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
10:19 a.m.
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