Legislature(2025 - 2026)ADAMS 519
02/19/2025 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Overview: Alaska Permanent Fund Corporation | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 53 | TELECONFERENCED | |
| += | HB 55 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| + | HB 69 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
February 19, 2025
1:59 p.m.
1:59:02 PM
CALL TO ORDER
Co-Chair Josephson called the House Finance Committee
meeting to order at 1:59 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Andy Josephson, Co-Chair
Representative Calvin Schrage, Co-Chair
Representative Jamie Allard
Representative Jeremy Bynum
Representative Alyse Galvin
Representative Sara Hannan
Representative Nellie Unangiq Jimmie
Representative DeLena Johnson
Representative Will Stapp
Representative Frank Tomaszewski
MEMBERS ABSENT
None
ALSO PRESENT
Deven Mitchell, Executive Director, Alaska Permanent Fund
Corporation; Ethan Schutt, Trustee, Board of Trustees,
Alaska Permanent Fund Corporation; Marcus Frampton, Chief
Investment Officer, Alaska Permanent Fund Corporation; Jim
Parise, Deputy Chief Investment Officer, Alaska Permanent
Fund Corporation; Representative Rebecca Himschoot,
Sponsor; Representative Rebecca Himschoot; Representative
Rebecca Schwanke.
SUMMARY
HB 69 EDUCATION FUNDING: INCREASE BSA
HB 69 was SCHEDULED but not HEARD.
OVERVIEW: ALASKA PERMANENT FUND CORPORATION
Co-Chair Josephson reviewed the meeting agenda.
^OVERVIEW: ALASKA PERMANENT FUND CORPORATION
2:01:15 PM
Co-Chair Josephson welcomed individuals from Alaska
Permanent Fund Corporation (APFC) and noted there was about
50 minutes for the presentation.
DEVEN MITCHELL, EXECUTIVE DIRECTOR, ALASKA PERMANENT FUND
CORPORATION, provided a PowerPoint presentation titled
"House Finance Committee: Alaska Permanent Fund," dated
February 2025 (copy on file). He began with an overview of
APFC's stewardship.
Representative Stapp noted that most of the state's revenue
came from the Permanent Fund. He thought the committee had
a longer period of time to hear from APFC.
Co-Chair Josephson noted there had been a recent reception
with APFC. He did not know there would be another
opportunity. He stated the answer may be no.
Representative Hannan asked if it was 15 minutes or 50.
Co-Chair Josephson stated 50.
Representative Allard encouraged more time to hear from
APFC the next time because it was for the public.
Mr. Mitchell moved to slide 3 titled "A Legacy of
Intergenerational Resource Contribution." In 1976 Alaskans
chose to permanently forgo immediate use of at least 25
percent of oil and mineral revenues, saving to create a
renewable financial resource for generations. He moved to
slide 4 titled "Investing for Alaska."
2:06:40 PM
ETHAN SCHUTT, TRUSTEE, BOARD OF TRUSTEES, ALASKA PERMANENT
FUND CORPORATION, spoke about resources on slide 5. He
stated that APFC's ability to achieve maximum risk-adjusted
returns relied on stable resources to support its
infrastructure. He moved to slide 6 titled "Positive
Impact: Insulation without Isolation." The intention of the
slide was to provide clarity and transparency in
governance.
2:08:27 PM
Mr. Mitchell discussed slide 7 titled "Budget Resources
FY26 Request." He stated that cyber security was of the
utmost importance that the fund was secure that priority.
2:12:01 PM
Representative Johnson noticed the $391,000 for an
additional PCN in private income. She did not see any
associated reduction in outside contracts. She asked if it
was just an addition.
Mr. Mitchell replied in the affirmative.
MARCUS FRAMPTON, CHIEF INVESTMENT OFFICER, ALASKA PERMANENT
FUND CORPORATION, replied that it was on future profit
sharing that would be avoided in the proposal.
Representative Galvin asked about the corporation's vacancy
rate.
Mr. Mitchell believed there were currently seven vacant
positions out of 67.
Representative Galvin asked if the $810,000 was part of
maintaining a low vacancy rate.
Mr. Mitchell replied affirmatively.
2:14:17 PM
Mr. Mitchell spoke about investment management fees on
slide 8. The slide included $521,000 for investment due
diligence, $810,000 for investment systems, and custody
fees at flat funding.
Mr. Mitchell moved to "Investment Management Fees" on slide
9.
Mr. Frampton continued to address slide 9. The report tried
to capture every expense involved in a portfolio. There
were three categories beginning with the operating budget
of the Permanent Fund, which allocated the operating budget
across the asset categories. The management fee allocation
was before private equity and alternative investment He
explained that when they cut a check to a manager at the
fund and paid a contractual fee, a new category of fees
emerged and the management fees were among the highest in
the industry.
2:21:47 PM
Mr. Frampton continued to review slide 9. There was an
asset allocation that had a fair amount of private
investments and alternative investments. He highlighted
that performance was net of all the fees and was a number
that reflected the private and alternative investments.
2:24:19 PM
Representative Stapp asked about the 23 basis points
collected pertaining to private equity. He asked for the
rate of return on private equity.
Mr. Frampton answered that the private equity portfolio
returned 14.7 percent compared to its benchmark return of
12.6 percent.
Representative Stapp asked for the net difference in basis
points, versus the total management fees.
Mr. Frampton answered the corporation looked at everything
net.
Representative Johnson looked at the paid from investments
column on slide 9. She asked whether there was tracking
associated with the investments.
Mr. Frampton replied there were a couple of checks and
balances. He noted that the finance department also
reviewed them and there were staff reviewing the
investments.
2:27:54 PM
Co-Chair Foster realized the fund source for the increments
was Permanent Fund receipts and not general funds. He asked
about growth in the expense line.
Mr. Mitchell stated his understanding of the question. He
would follow up. He thought it was between 8 and 12
percent.
Co-Chair Foster asked for a specific number without the
investment fees in a follow up.
2:30:18 PM
Mr. Mitchell addressed the APFC return on investment on
slide 10. He noted the income of $4.3 million, and remarked
that accounting net income took into consideration
increases or decreases in value of investments.
Mr. Schutt addressed slide 11 titled "APFC Related
Legislation." He remarked that they were requesting
amendments to existing law.
Co-Chair Josephson asked if there was an existing bill.
Mr. Schutt replied in the negative.
Co-Chair Foster asked how it was different than the rest of
state workers. He thought everyone had confidentiality.
Mr. Schutt understood that everyone's personnel records may
be subject to disclosure. He thought it was a matter of
profile, and felt that they should not have their public
records subject for request.
Co-Chair Foster assumed everyone had some level of
confidentiality.
Mr. Schutt answered that the corporation was not trying to
hide anything, and stated that it was more of the mundane
information about ordinary employees.
2:36:11 PM
Representative Allard asked if it was any difference for
other state employees. She stated that legislators were
exposed to APOC.
Mr. Mitchell believed exempt employees fell subject to the
ruling. There was an evaluation of the position and the
need of the public to be aware of their performance.
Representative Allard asked if the presenters were exempt
from public scrutiny.
Mr. Mitchell answered they were not exempt from scrutiny.
They were exempt employees.
2:38:14 PM
Mr. Mitchell noted that slide 13 set the stage for the
given guidance from the state.
Representative Allard asked if the corporation did
background checks on employees.
Mr. Mitchell replied affirmatively. He stated that it was a
rigorous check involving law enforcement information.
Mr. Mitchell moved to slide 14 titled "Principal: Savings."
2:41:30 PM
Mr. Mitchell looked at manual inflation proofing on slide
15. He remarked that North Slope crude had dropped, which
resulted in significant financial distress for the state.
He shared that it was rectified in FY 20 with a transfer
and there was an additional appropriation of $4 billion in
FY 22.
2:44:23 PM
Representative Johnson knew there was a constitutional
requirement to put 25 percent of the royalties into the
Permanent Fund. She understood that for some time 50
percent was put in the fund.
Mr. Mitchell answered that they discontinued the 25
percent.
Co-Chair Josephson asked if it resulted in a combined 30
percent.
Mr. Mitchell agreed.
Co-Chair Josephson asked if he was looking at the appendix.
Mr. Mitchell replied he was referencing the final page in
the appendix.
2:47:14 PM
Mr. Mitchell moved to "Global Investment" on slide 16.
Co-Chair Josephson asked for verification that Alaska was
known around the world for its sovereign wealth fund.
Mr. Mitchell agreed. He moved to slide 17 titled "Investing
for the Long Term."
2:49:38 PM
Mr. Frampton addressed slide 19 titled "Asset Allocation
and Callan Projections." He shared that the fund expected
to earn inflation plus 5 percent, and explained the mix on
the left of the slide was what they arrived at the past
year.
2:52:33 PM
JIM PARISE, DEPUTY CHIEF INVESTMENT OFFICER, ALASKA
PERMANENT FUND CORPORATION, addressed slide 20 titled
"Benchmarks - Internal Fixed Income." He addressed recent
performance and benchmarks on slide 21.
Mr. Frampton addressed private markets on slide 22. He
moved to slide 23 titled "A Peer Comparison: Norges Bank."
He noted that the Norway sovereign wealth fund was 70
percent stocks, 28 percent fixed income, and 2 percent real
estate. He moved to slide 24 titled "Investment Committee."
Representative Johnson asked about the employees at the
Anchorage office.
Mr. Frampton answered that there was one fixed income
analyst, an operations person to settle trades, an
associate on the private income team, and three members of
the private equity team. They were reflected in the
analysts private equity line on the slide.
Representative Johnson asked where the new employee would
be.
Mr. Frampton answered that they had not yet decided; it
would probably be an option.
Mr. Mitchell moved to slide 26 titled "Producing Income."
He moved to statutory net income history and projections on
slide 27.
3:05:18 PM
Co-Chair Josephson asked about the $3.5 million draw.
Mr. Mitchell replied that the current year inflation
proofing was appropriated at $5.5 billion and the percent
of market value (POMV) draw was $3.7 billion. The issue
highlights the difficulty of the two-account structure.
Mr. Mitchell moved to statutory net income drivers on slide
28.
Mr. Frampton remarked that the sensitivity demonstrated
that a correction in the stock market resulted in major
impacts on the fund.
Co-Chair Josephson remarked that the two large $4 billion
deposits in the corpus were intended to ensure that the
state did not overspend, but made the situation
troublesome.
Mr. Mitchell agreed, and felt that the paradigm of the two
account structure resulted in one account becoming a very
tempting funding source.
Representative Hannan wondered whether they should amend
the constitution to go to a single account structure, but
stated that it would not go to the voters until 2026 and
stressed that it looked like the problem may occur the
following year. She was hearing some alarms going off. She
thought they may not be addressing it in time, and even
meet the basic percentage of market value (POMV) draw the
following year.
3:12:18 PM
Mr. Mitchell answered that APFC had a very conservative
structure, and the FY 26 POMV was committed on July 1,
2024.
Co-Chair Josephson believed in the last seven years there
were unprecedented events in the permanent fund.
Mr. Mitchell answered that the reliance had put more stress
on the target rate of return.
3:15:59 PM
Mr. Frampton looked at slide 29 and discussed realized
earnings by asset class.
Mr. Mitchell corrected his earlier statement about the POMV
draw. He moved to slide 31 and discussed the structural
challenge.
Mr. Mitchell noted his correction on slide 32 pertaining to
Alaska's largest revenue source.
Mr. Mitchell addressed fund values and structure on slide
33, and pointed to $1 billion in inflation proofing. He
noted the $1.7 billion in unrealized gains allocated on a
pro rata basis between principal and the ERA.
3:22:16 PM
Mr. Mitchell addressed slide 34 titled "Spending is Limited
to the ERA."
Mr. Mitchell moved to slide 35 and addressed the ERA
decreasing availability and impacts.
3:23:47 PM
Mr. Schutt turned top slide 36 titled "Trustees' Paper
Volume 10." He attempted to address the scenario and
provide potential solutions, which were statutorily within
the power of the legislature. He remarked that the most
durable was the potential constitutional amendment to
collapse the two account structure into one to ensure
regardless of market conditions and cycle the fund had the
ability to make a POMV transfer to the state.
Co-Chair Josephson recalled the first resolution on the
topic was 25 years back.
Mr. Schutt agreed.
Mr. Mitchell added that slide 39 showed the current
construction, and the royalty contributions held within the
fund.
3:27:26 PM
Representative Stapp asked about the drawing down on the
total of the fund, which was not the same as not inflation
proofing.
Mr. Mitchell agreed
Representative Allard asked if there were 67 vacancies.
Mr. Mitchell responded in the affirmative.
Representative Allard asked if he had a job description for
new positions.
Mr. Mitchell responded that people in the financial
industry often had high salaries.
Representative Allard asked if they already had an
individual in mind.
Mr. Mitchell responded that it could be difficult, and
there were some employees who worked remotely outside of
Alaska.
Representative Johnson noted that there were some
structural changes. She asked him to speak to the
structural changes. She emphasized the importance of
balance.
3:32:12 PM
Mr. Mitchell explained that from flexibility perspective,
it was determined that it was more beneficial to have the
same appropriations. Typically they had been handled
separately. The flexibility was perceived as valuable
asset.
Representative Bynum had two comments and a question. He
would take the comments offline. He asked what should be
done with the POMV to maintain the value of the fund.
Mr. Mitchell replied that it was reasonable to have 5
percent.
Mr. Frampton added that year to year it was a tough
benchmark.
Representative Bynum would follow up offline.
Co-Chair Josephson thanked the presenters. He noted the
committee would move to the next item on the agenda. He
handed the gavel to Co-Chair Foster.
3:37:40 PM
AT EASE
3:37:45 PM
RECONVENED
Co-Chair Foster congratulated Mr. Frampton on the birth of
his baby.
He noted the meeting was at the end of its time.
Representative Stapp asked why they rushed the bill up to
hear it if they were not going to hear it.
Co-Chair Foster replied that they had run out of time. He
reviewed the schedule for the following day.
ADJOURNMENT
3:39:27 PM
The meeting was adjourned at 3:39 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 202502_HFIN Alaska Permanent Fund_Final.pdf |
HFIN 2/19/2025 1:30:00 PM |
|
| HB 69 Leg Fin Est Cost Inc of BSA.pdf |
HFIN 2/19/2025 1:30:00 PM |
HB 69 |
| HB 69 Presentation Final 2.2.25.pdf |
HFIN 2/19/2025 1:30:00 PM |
HB 69 |
| HB 69 Research ISER_Cost of Edn in AK-4.15.19_Slide16.pdf |
HFIN 2/19/2025 1:30:00 PM |
HB 69 |
| HB 69 Research ISER_K-12_Spending_3.22.pdf |
HFIN 2/19/2025 1:30:00 PM |
HB 69 |
| HB 69 Research Leg Fin 2.23 Citizens Guide K-12 Funding AK.pdf |
HFIN 2/19/2025 1:30:00 PM |
HB 69 |
| HB 69 Research Leg Fin Memo 9.30.24 Impact of Inflation on K-12 Funding.pdf |
HFIN 2/19/2025 1:30:00 PM |
HB 69 |
| HB 69 Sectional Analysis 1.24.25 FINAL.pdf |
HFIN 2/19/2025 1:30:00 PM |
HB 69 |
| HB 69 Sponsor Statement ver G 1.24.25.pdf |
HFIN 2/19/2025 1:30:00 PM |
HB 69 |
| HB 69_FNSBD Presentation, Dr. Meinert_House Finance 2_12_25-1.pdf |
HFIN 2/19/2025 1:30:00 PM |
HB 69 |
| APFC-052 Mid-Year Review_123124.pdf |
HFIN 2/19/2025 1:30:00 PM |
|
| 202402_APFC Follow Up to HFIN Committee on Feb 19.pdf |
HFIN 2/19/2025 1:30:00 PM |