05/01/1997 04:04 PM Senate STA

 Number 060                                                                    
                                                                               
              SB 118 PERMANENT FUND CORP. INVESTMENTS                          
                                                                               
                                                                               
 CHAIRMAN GREEN brought SB 118 before the committee as the next                
 order of business.                                                            
                                                                               
 BYRON MALLOTT, Executive Director, Alaska Permanent Fund                      
 Corporation, explained that the percentage of their total portfolio           
 allocated to stocks is now limited to 50 percent and SB 118 will              
 allow the corporation to increase that allocation to 60 percent.              
 Based upon their current allocation, a 50 percent equities                    
 exposure, on a total return basis the fund can be expected to                 
 return essentially 8.4 percent.  If the corporation is given the              
 authorization to increase that equity exposure to 60 percent, the             
 return, over time, would move to 8.7 percent.  Over a 20-year                 
 period of time, using their current portfolio and reasonable                  
 assumptions for growth and use of income, at a 50 percent limit it            
 would allow growth of the total portfolio to just under $50                   
 billion, and at a 60 percent limit it would grow to over $60                  
 billion.                                                                      
                                                                               
 Mr. Mallott said the corporation believes that increasing this                
 percentage provides the opportunity to add value to this tremendous           
 state asset over time without meaningful additional risk.  He added           
 that the volatility in returns at 50 percent are similar to the               
 volatility in returns that they could expect at 60 percent in the             
 equities market, while the opportunity for additional return is               
 meaningfully greater and grows at an expediential rate over time.             
 He pointed out the fund has experienced significant volatility in             
 equity markets over the past two years, but the corporation has               
 still achieved significant growth in the portfolio in spite of that           
 record.                                                                       
                                                                               
 Number 142                                                                    
                                                                               
 CHAIRMAN GREEN asked if other funds similar to the Alaska Permanent           
 Fund have more flexibility in all arenas as to the percentages they           
 designate for certain types of investment.  MR. MALLOTT responded             
 that most funds operate under the Prudent Investor Rule and they              
 have no limitations on where they can place their assets in the               
 marketplace except as their prudent judgment might dictate.  The              
 Alaska Permanent Fund Corporation invests to a specific investment            
 list which is specified in statute, whereas most funds have                   
 significantly greater latitude.  Most other funds that do manage to           
 statutory investment lists are moving away from that system toward            
 the Prudent Investor standard, although the corporation is not                
 requesting that.                                                              
                                                                               
 Number 230                                                                    
                                                                               
 CHAIRMAN GREEN noted that previously the percentage of the total              
 investments of the fund added up to 100 percent, but under this               
 legislation it now adds up to 110.  She asked if something else               
 needs to be adjusted.  JIM KELLY, Director of Communications,                 
 Alaska Permanent Fund Corporation, explained these are limits for             
 asset categories and none of these limits can be exceeded.                    
                                                                               
 Number 270                                                                    
                                                                               
 SENATOR MACKIE asked if the corporation had approached the                    
 Legislative Budget & Audit Committee and asked that this                      
 legislation be introduced.  MR. MALLOTT said the corporation                  
 approached Legislative Budget & Audit (which is their mandated                
 oversight committee) and indicated that they did not want to                  
 proceed with seeking this legislation unless there was meaningful             
 legislative support going in.  The corporation wanted to be sure              
 that LB&A understood the nature of what it was they were seeking,             
 that they weren't pressing for it in a way that would suggest that            
 it's importance might be overblown.  He added that moving from 50             
 to 60 percent isn't that significant as you look at the total                 
 portfolio and the total impact on the fund.                                   
                                                                               
 Number 304                                                                    
                                                                               
 There being no further testimony on SB 118, CHAIRMAN GREEN stated             
 the bill would be held until the end of the meeting.                          
                                                                               
 CHAIRMAN GREEN requested a motion to move SB 118 (PERMANENT FUND              
 CORP. INVESTMENTS) out of committee.                                          
                                                                               
 SENATOR MACKIE moved SB 118 be passed out of committee with                   
 individual recommendations.  Hearing no objection, it was so                  
 ordered.