Legislature(2021 - 2022)ADAMS 519

01/25/2022 01:30 PM House FINANCE

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01:34:19 PM Start
01:35:11 PM Presentation: Alaska Permanent Fund by the Alaska Permanent Fund Corporation
03:52:05 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Heard & Held
+ Presentation: Alaska Permanent Fund by TELECONFERENCED
Valerie Mertz, Acting Executive Director, Chief
Financial Officer, Alaska Permanent Fund
                  HOUSE FINANCE COMMITTEE                                                                                       
                     January 25, 2022                                                                                           
                         1:34 p.m.                                                                                              
1:34:19 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Foster called the House Finance Committee meeting                                                                      
to order at 1:34 p.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Neal Foster, Co-Chair                                                                                            
Representative Kelly Merrick, Co-Chair                                                                                          
Representative Dan Ortiz, Vice-Chair                                                                                            
Representative Ben Carpenter                                                                                                    
Representative Bryce Edgmon                                                                                                     
Representative DeLena Johnson                                                                                                   
Representative Andy Josephson                                                                                                   
Representative Bart LeBon                                                                                                       
Representative Sara Rasmussen                                                                                                   
Representative Steve Thompson                                                                                                   
Representative Adam Wool                                                                                                        
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Valerie Mertz, Acting Executive Director and Chief                                                                              
Financial Officer, Alaska Permanent Fund Corporation; Chris                                                                     
Poag, Legal Counsel, Alaska Permanent Fund Corporation.                                                                         
PRESENT VIA TELECONFERENCE                                                                                                    
Marcus Frampton, Chief Investment Officer, Alaska Permanent                                                                     
Fund Corporation.                                                                                                               
PRESENTATION: ALASKA PERMANENT FUND by the ALASKA PERMANENT                                                                     
FUND CORPORATION                                                                                                                
^PRESENTATION:   ALASKA  PERMANENT   FUND   by  the   ALASKA                                                                  
PERMANENT FUND CORPORATION                                                                                                    
1:35:11 PM                                                                                                                    
VALERIE   MERTZ,  ACTING   EXECUTIVE   DIRECTOR  AND   CHIEF                                                                    
FINANCIAL  OFFICER,   ALASKA  PERMANENT   FUND  CORPORATION,                                                                    
provided a PowerPoint  presentation titled "Alaska Permanent                                                                    
Fund  Corporation: House  Finance Committee,"  dated January                                                                    
25, 2022 (copy on file).  She briefly introduced herself and                                                                    
shared that  she had lived in  Juneau most of her  life. She                                                                    
was a  certified public accountant  (CPA) and had  been with                                                                    
the Alaska  Permanent Fund Corporation (APFC)  for 18 years.                                                                    
She  had  been the  acting  director  during the  transition                                                                    
between the  former Director Mike  Burns to  Director Angela                                                                    
Rodell in 2015. She offered  assurance to the committee that                                                                    
employees at  APFC had not  let recent  controversies impact                                                                    
the work that they were doing.                                                                                                  
Ms. Mertz advanced to slide 2  and relayed that the fund was                                                                    
created in  1980 as  a separate state  entity. The  fund was                                                                    
overseen  by  a   board  of  trustees  who   served  as  its                                                                    
fiduciaries. The  mission of the  corporation was  to manage                                                                    
and invest the assets of  the Permanent Fund and other funds                                                                    
designated by  law in accordance  with AS  37.13.010 through                                                                    
AS 37.13.190.  She pointed  to the right  side of  the slide                                                                    
which showed the items managed by the corporation.                                                                              
Representative Edgmon  asked for more information  about the                                                                    
maximum  returns  and  the  vision  of  the  corporation  as                                                                    
indicated on the slide.                                                                                                         
Ms.  Mertz answered  that APFC  was required  to follow  the                                                                    
prudent investor  rule and  that the  mission and  vision of                                                                    
the corporation were driven by the rule.                                                                                        
Representative   Edgmon  stated   that   "maximum"  was   an                                                                    
important word in the prudent investor rule.                                                                                    
1:39:15 PM                                                                                                                    
Ms. Mertz turned  to slide 3 and detailed that  the fund had                                                                    
a balance of  just under $81 billion at the  end of November                                                                    
2021, with $65  billion in the fund  principal. The Earnings                                                                    
Reserve  Account  (ERA)  balance   was  $15.7  billion.  She                                                                    
relayed that $3.4 billion of  the $15.7 billion had been set                                                                    
aside for the FY 23  percent of market value (POMV) transfer                                                                    
to  the  general fund,  and  another  $3.4 billion  for  the                                                                    
unrealized gains  of ERA. In  total, there  were uncommitted                                                                    
earnings of just under $9 billion.                                                                                              
Ms. Mertz  addressed slide  4 which included  a list  of the                                                                    
sources of change  in value for the fund from  the end of FY                                                                    
21  to FY  22 as  of November  30, 2021.  The bottom  of the                                                                    
slide  showed  how  APFC calculated  statutory  net  income,                                                                    
which did not  include the unrealized gains  and losses. She                                                                    
reported that the  FY 22 year-to-date to ERA  was just under                                                                    
$3 billion.                                                                                                                     
1:42:34 PM                                                                                                                    
Ms. Mertz advanced  to slide 5 which  compared APFC's return                                                                    
on investment  between FY 21  and FY  20 using a  variety of                                                                    
metrics. She  relayed that FY  21 was an  extraordinary year                                                                    
for the fund in terms  of performance, earning an average of                                                                    
$77  million per  trading day.  In  FY 20,  the fund  earned                                                                    
about  $7 million  per trading  day. She  noted that  APFC's                                                                    
operating budget and management fee  budget in FY 21 totaled                                                                    
about $168 million, which meant  that all operating expenses                                                                    
for the year  had been recovered by about  the sixth trading                                                                    
Representative Johnson  pointed to the  last box on  slide 5                                                                    
regarding  APFC investment  management. She  asked for  more                                                                    
details about  what investment  management entailed  for the                                                                    
Ms. Mertz answered  that it represented the  amount that was                                                                    
paid  out   to  investment  managers,  which   included  the                                                                    
publicly traded  securities, systems and analytics,  and due                                                                    
diligence and legal fees needed to manage the fund.                                                                             
Representative Johnson  asked if  the category  included all                                                                    
contractors working outside the APFC building.                                                                                  
Ms. Mertz replied  that it did not  include all contractors.                                                                    
She  explained that  employees who  did administrative  work                                                                    
would  not be  included,  but employees  who did  investment                                                                    
management work were included.                                                                                                  
Representative  Wool asked  which  category the  performance                                                                    
bonuses fell under.                                                                                                             
Ms. Mertz responded that the  bonuses were in the operations                                                                    
Representative Wool  asked why there  was a decrease  in the                                                                    
operations budget from FY 20 to FY 21.                                                                                          
Ms.  Mertz clarified  that  the figures  on  the slide  were                                                                    
actual  expenses, not  the budget  authorization. She  would                                                                    
have  to   follow  up  on   exactly  what   constituted  the                                                                    
1:46:13 PM                                                                                                                    
Ms.  Mertz  moved to  slide  6  which included  a  graphical                                                                    
representation  of the  structure of  the fund.  She pointed                                                                    
out the mineral royalties flowing  into the principal on the                                                                    
left side of  the slide, which were  distributed into income                                                                    
producing  investments, and  the earnings  then flowed  into                                                                    
the ERA  account. She  noted that the  ERA account  was also                                                                    
invested   alongside  the   principal   and  available   for                                                                    
appropriation.  She  explained   that  appropriated  amounts                                                                    
would flow out  of the ERA and back to  the principal in the                                                                    
form of  inflation proofing. The  ERA was also used  to fund                                                                    
corporate operating  expenses and  the POMV transfer  to the                                                                    
general fund.                                                                                                                   
Ms. Mertz  discussed the principal  of the fund on  slide 8.                                                                    
She  detailed  that the  principal  was  established in  the                                                                    
constitution  as a  permanent savings  account and  was used                                                                    
only  for  income-producing  investments and  was  protected                                                                    
from  appropriation.  Historically,  the principal  grew  in                                                                    
three  ways:  royalty   deposits,  inflation  proofing,  and                                                                    
special appropriation.  The slide  showed that  the expected                                                                    
royalty amount in FY 22 was $429 million.                                                                                       
Representative Edgmon  did not see reference  to the special                                                                    
appropriations the  legislature had made over  the years. He                                                                    
asked if  special appropriations would be  more than royalty                                                                    
deposits over the year.                                                                                                         
Ms. Mertz  responded she  would answer  the question  on the                                                                    
next slide.                                                                                                                     
Representative   Josephson   asked   whether   the   special                                                                    
appropriations were known as inflation transfers.                                                                               
Ms. Mertz  answered that APFC considered  inflation proofing                                                                    
appropriations to be separate from everything else.                                                                             
Representative LeBon  noted that the royalty  deposits shown                                                                    
on  the chart  on  side 8  consisted of  the  25 percent  of                                                                    
royalty proceeds  and the  statutorily mandated  deposits of                                                                    
50 percent  for leases after 1979.  He asked if there  was a                                                                    
comment  about the  relationship  between the  two pools  of                                                                    
money flowing  into the fund. He  asked if the state  was up                                                                    
to date with the 50 percent deposit for leases.                                                                                 
Ms. Mertz  responded that  APFC did  not make  a distinction                                                                    
between  the  constitutionally   required  amounts  and  the                                                                    
statutorily required amounts. She  noted that the Department                                                                    
of Natural Resources (DNR) oversaw the matter.                                                                                  
Representative  LeBon  pointed  out  that  royalty  deposits                                                                    
included mining in addition to  oil and gas. He acknowledged                                                                    
the  important role  mining had  played in  building up  the                                                                    
Representative Wool  asked if  royalties from  federal lands                                                                    
such   as  the   Natural  Petroleum   Reserve-Alaska  (NPRA)                                                                    
followed the same deposit structure.                                                                                            
Ms.  Mertz replied  that federal  deposits were  included as                                                                    
received from DNR.                                                                                                              
Ms. Mertz continued to address  slide 8 and relayed that the                                                                    
second way  the principal grew was  inflation. She explained                                                                    
that  the  inflation  proofing   calculation  was  based  on                                                                    
deposits into the  principal and on the  inflation rate that                                                                    
was calculated  as per statute. An  appropriation was needed                                                                    
to fulfill  the statutory  obligation. She noted  that there                                                                    
were a  handful of years  that did not include  an inflation                                                                    
transfer because the inflation rate was negative.                                                                               
Ms. Mertz addressed the third  way the principal could grow,                                                                    
which  was through  special appropriation.  The growth  came                                                                    
about  when there  were legislative  deposits from  both the                                                                    
general fund and ERA.                                                                                                           
1:53:15 PM                                                                                                                    
Ms. Mertz moved to slide  9 which included a graph outlining                                                                    
the  principal contributions  since FY  78. She  believed it                                                                    
applied  to Representative  Edgmon's previous  question. The                                                                    
gold bars  represented the  mineral royalty  deposits, which                                                                    
totaled  about  $18.4 billion  since  the  inception of  the                                                                    
fund.  The bright  blue  bar  reflected inflation  proofing,                                                                    
which was  tied to the  inflation rate and varied  from year                                                                    
to year in  magnitude. Since the inception of  the fund, $18                                                                    
billion had been transferred from the ERA to the principal.                                                                     
Co-Chair Merrick asked for an  explanation of the settlement                                                                    
category represented by the red bars.                                                                                           
Ms. Mertz  answered that  there was a  lawsuit in  which the                                                                    
state  was  involved  and  the  settlement  money  from  the                                                                    
lawsuit  was  deposited  into the  principal.  She  was  not                                                                    
appraised of the particulars of the lawsuit.                                                                                    
Representative  Edgmon  noted  that there  were  some  years                                                                    
where the state was not  able to fund inflation proofing. He                                                                    
thought the fact  that the legislature had  been intent upon                                                                    
growing the fund needed underscoring.                                                                                           
Ms.  Mertz  reviewed the  ERA  beginning  on slide  11.  She                                                                    
explained that  it was established  in AS 37.13.145(a)  as a                                                                    
separate  account to  hold the  realized  earnings from  the                                                                    
fund's investment portfolio and  it grew through the receipt                                                                    
of statutory net income. She  advanced to slide 12 and added                                                                    
that  statutory  net  income included  two  components:  the                                                                    
regularized   monthly   cash   flows  that   the   portfolio                                                                    
investments  were  generating  and  the  capital  gains  and                                                                    
losses. She thought  that FY 22 was shaping up  to be fairly                                                                    
profitable. The  bars on the  chart on slide  12 represented                                                                    
the total  returns as compared  to the statutory  net income                                                                    
since FY 01. There was  not an immediate correlation between                                                                    
the statutory net income and  total return. She thought that                                                                    
the  statutory  net  income  was  more  dependent  upon  the                                                                    
activity in the portfolio.                                                                                                      
1:58:56 PM                                                                                                                    
Ms.  Mertz discussed  the cumulative  fund earnings  and how                                                                    
the earnings  had been  used on  slide 13.  Since inception,                                                                    
the  fund  had  generated  almost $80  billion  in  realized                                                                    
earnings. Of  the $80  billion, about  $37 million  had been                                                                    
paid  out  in  the  form of  dividend  appropriations,  POMV                                                                    
distributions  to  the  general  fund,  and  Alaska  capital                                                                    
income. There  had been $30  billion in savings from  ERA to                                                                    
the principal. The current realized  earnings were about $12                                                                    
billion and there  was $9 billion left  over for uncommitted                                                                    
Representative Edgmon remarked that  when the first dividend                                                                    
had been  distributed in  1982, it  consisted of  money that                                                                    
had been  appropriated by the legislature  rather than money                                                                    
in the fund. He asked if  there had been occasions when more                                                                    
than  five  percent  POMV  was  paid out  as  the  fund  was                                                                    
Ms. Mertz thought  the question was interesting  and that it                                                                    
would be valuable to find out the answer.                                                                                       
Representative Edgmon would appreciate  a follow up with the                                                                    
Representative  Carpenter thought  there  were two  statutes                                                                    
that directed the corporation on  how to determine earnings.                                                                    
He  asked  how the  corporation  decided  which of  the  two                                                                    
statutes to follow.                                                                                                             
Ms.  Mertz  answered  that the  APFC's  accounting  followed                                                                    
generally  accepted  accounting principles.  The  principles                                                                    
required  that earnings  be committed  when  the amount  was                                                                    
known. The  only way a  payout would  not happen was  if the                                                                    
legislature decided against it.  The corporation was able to                                                                    
accurately predict the POMV transfer  amount well in advance                                                                    
and  had   decided  the  likelihood  of   that  payment  not                                                                    
occurring was remote.                                                                                                           
Representative Carpenter  understood that SB 26  [adopted in                                                                    
2018]  relating  to  the  POMV draw  was  in  conflict  with                                                                    
another statute.  He thought that  APFC assumed that  in the                                                                    
next  budget cycle,  the legislature  would choose  the POMV                                                                    
model and  not the 21  percent model  as outlined in  SB 26.                                                                    
However, if the  legislature chose to not  continue with the                                                                    
POMV model  for whatever reason, other  statutes would apply                                                                    
equally to APFC's obligations.                                                                                                  
Ms. Mertz  agreed that APFC  followed the  appropriations as                                                                    
acted  upon.  She  stated that  the  calculation  under  the                                                                    
statutory  dividend would  result  in less  of a  commitment                                                                    
from the  ERA than the  POMV calculation would.  She thought                                                                    
the approach  was conservative because it  required that the                                                                    
maximum amount possible be set aside.                                                                                           
2:06:39 PM                                                                                                                    
Representative Wool  stated that the  SB 26 statute  was not                                                                    
just  a  calculation  statute  but   was  a  funding  source                                                                    
statute. He was not certain  that there was a funding source                                                                    
included  in  the  original statute  [AS  37.13.010  through                                                                    
37.13.190].  He recalled  that the  legislature was  told in                                                                    
2008 that  the ERA  might not be  substantial enough  to pay                                                                    
out a dividend. He guessed  that the ERA might have exceeded                                                                    
five percent POMV in 2008.                                                                                                      
Ms. Mertz replied  it was possible. She could  not provide a                                                                    
definitive answer without running the numbers.                                                                                  
2:08:19 PM                                                                                                                    
MARCUS FRAMPTON, CHIEF  INVESTMENT OFFICER, ALASKA PERMANENT                                                                    
FUND  CORPORATION (via  teleconference), apologized  for not                                                                    
being  present   in  person.  He  was   currently  traveling                                                                    
visiting  external  investment  managers. He  continued  the                                                                    
presentation  on   slide  15   to  discuss   the  investment                                                                    
oversight.  He  relayed  that the  investment  team  had  52                                                                    
employees  with  five  investment  directors  that  reported                                                                    
directly  to him.  He  stated  that the  team  made his  job                                                                    
fairly easy  in terms of managing  the fund and there  was a                                                                    
significant  amount  of  experience   within  the  team.  He                                                                    
reported to  the executive director,  who was  currently Ms.                                                                    
Representative Thompson  asked about the amount  of turnover                                                                    
of investment officers and portfolio  managers. He asked how                                                                    
the corporation  compared to  other funds  in term  of staff                                                                    
Mr.  Frampton answered  that there  had  been some  turnover                                                                    
within the team. He thought  there were good retention rates                                                                    
for  senior level  investment officers,  but he  had a  more                                                                    
difficult time retaining junior  and mid-level employees due                                                                    
to the  competitiveness of  the industry.  He noted  that he                                                                    
had  some   trouble  recruiting  and   retaining  employees.                                                                    
Although   there  had   been  turnover,   he  believed   the                                                                    
corporation had a  stable team and that key  positions had a                                                                    
long tenure.                                                                                                                    
2:13:29 PM                                                                                                                    
Representative  Edgmon thought  that the  fund had  recently                                                                    
won a fairly  prestigious award as a good place  to work. He                                                                    
remarked that  turnover was part of  the investment industry                                                                    
and there would always be higher turnover rates.                                                                                
Ms. Mertz replied  that the corporation had won  an award in                                                                    
2021  for being  one  of  the best  places  to  work from  a                                                                    
publication called  Pensions and Investments. The  award was                                                                    
based  on  a survey  by  the  human resources  director  and                                                                    
completed by  employees. She agreed  that turnover  was part                                                                    
of  the game.  She remarked  that recruiting  in Juneau  was                                                                    
particularly  difficult because  not many  people wanted  to                                                                    
live in Juneau.                                                                                                                 
Representative   Edgmon  understood   that  the   award  was                                                                    
international   and  only   sovereign   wealth  funds   were                                                                    
Representative LeBon referred  to the chart on  slide 15 and                                                                    
asked  how  involved  the  board  of  trustees  was  in  the                                                                    
decision  to consider  private  investments  offered to  the                                                                    
fund by  venture capital investment companies.  He asked for                                                                    
more details about  the role the board  played in investment                                                                    
Mr.   Frampton  responded   that   there   was  less   board                                                                    
involvement  in investment  decisions in  Alaska than  there                                                                    
was in  other states with  similar plans. Every  year during                                                                    
the month  of May,  APFC presented the  board with  a pacing                                                                    
analysis  that outlined  the recommended  amount of  capital                                                                    
that should  be deployed  in venture capital  private equity                                                                    
and  other private  equity to  achieve the  exposure target.                                                                    
For example,  the target for venture  capital private equity                                                                    
in  2021  was  $1.6  billon.  He relayed  that  all  of  the                                                                    
investment discretion was at the  staff level. He understood                                                                    
that  based   on  ten-year  returns,  Alaska   had  the  top                                                                    
performing private investment program in the country.                                                                           
2:18:28 PM                                                                                                                    
Mr. Frampton advanced to the  discuss some current topics in                                                                    
the investment  department on slide 16.  The corporation was                                                                    
currently working off of a  November 2021 performance report                                                                    
that showed  the fund was up  by 2.8 percent. He  noted that                                                                    
public equities accounted for about  38 percent of the fund,                                                                    
but the equity benchmark had  appreciated by about 4 percent                                                                    
in December of  2021. There were strong marks  coming in for                                                                    
December 2021  on private  equity as  well. He  believed the                                                                    
fund  was  increasing in  value  despite  the stock  markets                                                                    
appearing to be  in a decline. He thought that  the fund was                                                                    
up by perhaps  a bit more than the reported  2.8 percent but                                                                    
it was  difficult to  say. He stated  there were  three open                                                                    
positions in  the investment  department, which  seemed like                                                                    
it had been the average  number of open positions during the                                                                    
ten years  he had  worked for the  corporation. There  was a                                                                    
new credit analyst position that  had been recently approved                                                                    
and  for which  APFC  was recruiting,  however  it had  been                                                                    
difficult to  fill. There  was also  a portfolio  manager of                                                                    
real estate  position that was  open as a result  of someone                                                                    
leaving  the corporation.  He reiterated  that the  turnover                                                                    
was  normal.  The corporation  was  always  focusing on  the                                                                    
assessment of  internal versus  external management  but was                                                                    
especially focused  on public equities in  the current year.                                                                    
He added  that the corporation  was always very  cautious as                                                                    
internally  managed   equities  grew.  Every   year,  Callan                                                                    
Associates  presented an  asset allocation  analysis to  the                                                                    
board which  fed into the return  of the fund. For  the last                                                                    
couple of  years, the Callan capital  market forecasted that                                                                    
every asset  apart from  private equity  would be  under the                                                                    
consumer price index (CPI) plus five percent.                                                                                   
Mr. Frampton skipped slide 17  and moved to slide 18 showing                                                                    
pie  charts of  the fund's  asset allocation  over time.  He                                                                    
relayed that in 1980, an  investor could earn a double digit                                                                    
return just  in fixed income.  Over time, asset  classes had                                                                    
been added  and the  equity mix had  grown. After  2006, the                                                                    
fund  began  adding  numerous   private  asset  classes  and                                                                    
alternatives. He pointed to the  pie chart on the right side                                                                    
of the slide which  showed the corporation's current target.                                                                    
The dark  blue and  light green sections  combined reflected                                                                    
58 percent  of the fund in  the 2022 target. He  stated that                                                                    
some  of the  asset  classes had  high  market exposure  and                                                                    
others  had   low  market  exposure.   He  added   that  the                                                                    
corporation would only support  hedge funds that were market                                                                    
neutral and  the returns portfolio  was uncorrelated  to the                                                                    
stock  market due  to the  cautious investing.  He tried  to                                                                    
keep a thoughtful  amount of assets in  low exposure classes                                                                    
to ensure that there would  still be returns when the market                                                                    
was behaving differently.                                                                                                       
2:27:42 PM                                                                                                                    
Vice-Chair Ortiz stated the committee  had heard from Callan                                                                    
Associates the  previous day. The  president of  Callan, Mr.                                                                    
Greg Allen, had  relayed that the ERA was  a distraction and                                                                    
suggested   constitutionalizing   the   POMV  to   end   the                                                                    
distraction.  He asked  how much  the distribution  chart on                                                                    
slide 18 was impacted by  the potential that the legislature                                                                    
could overdraw the  ERA at any time. He asked  if the charts                                                                    
would change in any way if the ERA were eliminated.                                                                             
Mr.  Frampton replied  that  he did  not  believe the  chart                                                                    
would be at  all impacted if the ERA was  eliminated. He and                                                                    
the investment team did not  pay attention to the difference                                                                    
between  the  ERA  and principal  from  a  daily  management                                                                    
perspective.  He   thought  the  corporation's   chief  risk                                                                    
officer  as well  as  Callan  would not  want  more than  45                                                                    
percent of the  fund invested in illiquid  assets because it                                                                    
would  not be  possible to  rebalance the  fund. He  relayed                                                                    
that his goal  was to compile a liquid  asset portfolio that                                                                    
could deliver  a real return  of five percent.  More private                                                                    
equity had been allocated because  the goal was difficult to                                                                    
accomplish given the current market.                                                                                            
Representative  Wool  asked  for  a  definition  of  private                                                                    
income and risk parity.                                                                                                         
Mr.   Frampton  answered   that   private  income   involved                                                                    
investing in  private infrastructure and private  credit. He                                                                    
explained  the corporation  was a  limited partner  in funds                                                                    
that extended  private loans to private  companies. He noted                                                                    
that   private  infrastructure   was  the   same,  and   the                                                                    
corporation was  generally a limited  partner in  funds that                                                                    
were managed by purchasers  of infrastructure assets such as                                                                    
airports and  toll roads. The corporation  was aggressive in                                                                    
coinvesting without incurring fees.  He noted that currently                                                                    
the high  yield market  was at about  four percent  and risk                                                                    
parity  was  a  small  one  percent  allocation.  It  was  a                                                                    
complicated concept, but generally  it consisted of managers                                                                    
who  were weighing  global balance  portfolios, commodities,                                                                    
bonds, stocks,  and treasury  inflation-protected securities                                                                    
(TIPS) and  applying leverage to the  non-equity investments                                                                    
to achieve  the same  volatility contribution.  For example,                                                                    
the   managers  aimed   to   ensure   that  the   volatility                                                                    
contribution within  the bonds was  the same as  the stocks.                                                                    
He explained that  generally, 90 percent of  volatility in a                                                                    
portfolio was from  equity because bonds did  not change. In                                                                    
simple terms,  risk parity managers applied  leverage to the                                                                    
2:33:29 PM                                                                                                                    
Representative Edgmon  pointed to the  pie chart on  side 18                                                                    
detailing  the  2022  target.  He  understood  that  the  38                                                                    
percent section  representing stocks  was most  sensitive to                                                                    
inflationary activity.                                                                                                          
Mr. Frampton  answered that the  fixed income  portfolio was                                                                    
most  sensitive to  inflation. If  there  was eight  percent                                                                    
inflation  in  the  next seven  years  it  would  negatively                                                                    
impact  the value  of the  bond portfolio.  He thought  that                                                                    
stocks had some ability to  pass through price increases. If                                                                    
inflation continued  at its  current rate,  businesses would                                                                    
experience  a significant  amount of  pressure on  wages. He                                                                    
was  concerned  about  inflation  and  thought  it  was  the                                                                    
biggest investment  risk and that  most portfolios  were not                                                                    
well positioned for it. The  corporation had added some gold                                                                    
investments  and a  portion of  the  corporation's cash  was                                                                    
held in gold exchange traded funds (ETFs).                                                                                      
Representative Edgmon asked  how it would play  out if there                                                                    
was a draw that exceeded the five percent POMV.                                                                                 
Mr. Frampton answered that an ad  hoc draw would come out of                                                                    
the liquid assets.  Depending on the magnitude  of the draw,                                                                    
the other exposures might need to be adjusted.                                                                                  
2:36:41 PM                                                                                                                    
Representative  Edgmon asked  who would  be involved  in the                                                                    
decision making process if an overdraw occurred.                                                                                
Mr.   Frampton   asked    for   clarification   on   whether                                                                    
Representative  Edgmon  was  referring to  the  decision  to                                                                    
overdraw  or the  decision on  what would  be done  after an                                                                    
overdraw occurred.                                                                                                              
Representative Edgmon  responded that  he was  curious about                                                                    
what the process  would be if an overdraw were  to occur. He                                                                    
presumed that  the payout would  not occur all at  one time.                                                                    
He  suggested   that  the  investment  decisions   would  be                                                                    
significant enough to involve the board of trustees.                                                                            
Mr.  Frampton  answered  that there  were  specified  ranges                                                                    
around each asset class in  the investment policy statement.                                                                    
He relayed  that the  permitted ranges  were referred  to as                                                                    
the green  zone. If there  was an overdraw, APFC  would work                                                                    
to stay  in the  green zone when  withdrawing the  funds. He                                                                    
was confident  he would be  able to  stay in the  green zone                                                                    
and would communicate his plans with the board of trustees.                                                                     
Representative Edgmon  stated that the process  was outlined                                                                    
in program benchmarks.  He was trying to get  a better sense                                                                    
of the decision making process  and thought it was important                                                                    
to understand what would happen in the case of an overdraw.                                                                     
Mr. Frampton  advanced to slide  19 and discussed  the total                                                                    
fund positioning  and performance. There were  a few notable                                                                    
deviations from the  fund's benchmarks. As of  June 3, 2021,                                                                    
the  asset  allocation  was  up from  the  target  by  three                                                                    
percent in  the private  equity category.  He had  looked at                                                                    
other  funds  such  as   the  California  Public  Employees'                                                                    
Retirement  System (CALPERS)  and  noticed  that most  other                                                                    
funds  also  differed from  the  target  in private  equity.                                                                    
Generally speaking, the private  equity asset class had been                                                                    
successful.  He   also  highlighted   that  the   state  was                                                                    
defensively positioned in public equity as well.                                                                                
2:42:49 PM                                                                                                                    
Representative Johnson  asked for  clarification on  the 0.1                                                                    
percent risk parity.  She asked if the  asset allocation was                                                                    
intended  to  balance  risk   because  bonds  were  low-risk                                                                    
Mr. Frampton answered that  Representative Johnson seemed to                                                                    
understand  it  well.  He  added  that  it  was  a  balanced                                                                    
portfolio holding a wider range  of assets than were held by                                                                    
most  traditional portfolios.  The whole  portfolio had  the                                                                    
volatility  of  an  equity portfolio  but  behaved  slightly                                                                    
differently  because  there  were  risk  contributions  from                                                                    
other areas.  The fund  had no exposure  to leverage  and it                                                                    
was unlikely  to be affected  by outside sources.  The asset                                                                    
allocation was small, but there  were two large and separate                                                                    
accounts of  $400 million.  He thought  the managers  of the                                                                    
accounts interacted well  with staff from APFC  and that the                                                                    
relationship was sound.                                                                                                         
Representative  Johnson  thought  it would  make  sense  for                                                                    
there to be a research component within the strategy.                                                                           
Mr. Frampton turned  to a chart on  diversification on slide                                                                    
20. He relayed that Alaska  had a much more global portfolio                                                                    
than its  peers. The  United States'  stock market  had been                                                                    
the stand-out  performer in the  the past ten years  and had                                                                    
consistently  outperformed its  targets.  The  graph on  the                                                                    
slide  compared  the U.S.  market's  returns  since 1900  to                                                                    
other markets.                                                                                                                  
2:48:28 PM                                                                                                                    
Mr.  Frampton briefly  highlighted the  global portfolio  on                                                                    
slide  21. He  addressed the  current market  environment on                                                                    
slide 22  which provided  data from  Bridgewater Associates.                                                                    
One  of the  duties  of  APFC was  to  work  with Callan  to                                                                    
project  what   the  future  would  look   like,  which  was                                                                    
challenging.  It was  possible to  go back  and look  at the                                                                    
market valuation in  the past and make  projections based on                                                                    
the data.  He noted that the  stock market had only  been as                                                                    
expensive as it currently was in  1929 and 2000, and both of                                                                    
the periods had weak equity  markets. The chart on the right                                                                    
of the slide was produced  by Bridgewater Associates using a                                                                    
valuation-based  expected   return  approach.   The  10-year                                                                    
outlook for nominal returns on  U.S. equities was about five                                                                    
percent  using  the  approach.  He  believed  the  investing                                                                    
market would become  more difficult than it had  been in the                                                                    
past ten years.                                                                                                                 
Mr. Frampton  skipped slide 23  and moved to slide  24 where                                                                    
he discussed risk management. He  explained that APFC was in                                                                    
the business of taking risks  in order to achieve its return                                                                    
objectives.  The   corporation  could  choose  to   take  no                                                                    
investment  risks and  still achieve  its goals;  however if                                                                    
the corporation abstained from taking  risks over a 10 to 15                                                                    
year period of time, it was  likely that the goals would not                                                                    
be reached. He thought APFC  had a sophisticated approach to                                                                    
risk management.                                                                                                                
Representative  Wool  remarked   that  investment  decisions                                                                    
sometimes hinged  upon political considerations.  He thought                                                                    
the  board had  likely  been lobbied  to  take a  particular                                                                    
political approach,  but he guessed  that the board  and the                                                                    
corporation  were  not  persuaded.  He  mentioned  that  New                                                                    
Mexico  had a  sovereign wealth  fund with  a three  percent                                                                    
yearly draw, and  a portion of the draw was  allotted to in-                                                                    
state investments.  He acknowledged that Mr.  Frampton might                                                                    
have   planned   to  address   the   topic   later  in   the                                                                    
2:54:51 PM                                                                                                                    
Mr.  Frampton  responded  that  environmental,  social,  and                                                                    
governance  (ESG) investing  was a  current buzzword  in the                                                                    
investment  industry.  The  corporation allowed  for  public                                                                    
comments  at  board  meetings  and  the  comments  currently                                                                    
tended  to  be  around  divesting  from  fossil  fuels.  The                                                                    
corporation had  not incorporated  ESGs into  the portfolio.                                                                    
Much of the  success of the fund was related  to the oil and                                                                    
gas industry  and the corporation made  investment decisions                                                                    
purely on financial merits. The  corporation was holding its                                                                    
private equity investments and its  other investments to the                                                                    
same benchmarks.                                                                                                                
Representative   Wool   shared    his   understanding   that                                                                    
investments were  held to the same  benchmarks. He indicated                                                                    
that New  Mexico had $30  billion in  its fund with  a three                                                                    
percent  annual  draw.  He  asked  if  APFC  had  a  similar                                                                    
percentage  benchmark. He  was  glad  that investments  were                                                                    
held to the same performance levels.                                                                                            
Mr. Frampton  answered that  private equity  performance was                                                                    
complicated. Generally,  returns were categorized  as either                                                                    
realized  or unrealized.  He  thought it  was  too early  to                                                                    
properly  evaluate the  performance, but  the early  private                                                                    
equity returns  had been promising.  He added that  APFC had                                                                    
made $200  million in  commitments in  2019. He  was pleased                                                                    
with the  results, but again  it was  still early on  in the                                                                    
Representative  LeBon noted  that  some  national banks  had                                                                    
announced  a  reluctance  to  invest  in  the  oil  and  gas                                                                    
industry in  Alaska. He  asked whether  APFC was  willing to                                                                    
invest in any of the national banks through stock holdings.                                                                     
Mr. Frampton answered that every  major bank had stated that                                                                    
it was against  investing in arctic oil and  gas. He thought                                                                    
that  fixed  income  trading  would   be  difficult  if  the                                                                    
corporation was not able to  trade through market makers and                                                                    
brokers. He added  that the big banks  were major components                                                                    
in  state  industries  and the  corporation  did  not  avoid                                                                    
investing in the banks. He  was skeptical about the basis of                                                                    
the decision to refrain from  investing in artic oil and gas                                                                    
and thought  it was based  more in public relations  than in                                                                    
Representative  Josephson asked  if  there  was anything  in                                                                    
statute  that  was prohibiting  APFC  from  adopting an  ESG                                                                    
3:01:28 PM                                                                                                                    
Mr.  Frampton responded  that he  did not  know. He  thought                                                                    
that  there were  elements of  ESG that  were important  and                                                                    
valid, and he  did not intend to be dismissive  of the idea.                                                                    
It was  vital to  the corporation for  companies to  have an                                                                    
independent  board and  strong governance  in order  for the                                                                    
corporation to invest.  It would be a mistake  to ignore ESG                                                                    
risks, but it  would also be a mistake  to ignore technology                                                                    
changes. He  did not  mean to give  the impression  that the                                                                    
corporation  did not  factor  in ESG  risks,  but he  simply                                                                    
wanted to  relay that the  corporation was  laser-focused on                                                                    
performance and not distracted by ESG risks.                                                                                    
Representative Josephson indicated that  the Exxon board was                                                                    
doing  substantive   things  to   move  in   an  intentional                                                                    
direction in terms of how it  wanted to grow. He thought one                                                                    
of the first  things that came before the board  in the late                                                                    
1980s or  early 1990s concerned Apartheid  and investment in                                                                    
South  Africa. remarked  that "these  are things"  the state                                                                    
should historically be tuned into.                                                                                              
3:03:50 PM                                                                                                                    
Representative Rasmussen  asked if the Permanent  Fund would                                                                    
be impacted if royalty deposits ceased.                                                                                         
Mr. Frampton  replied that there  would be an impact  on the                                                                    
growth of the fund if it no longer received royalties.                                                                          
Representative  Carpenter  asked  if  APFC  could  meet  its                                                                    
mission without  investing in private  equity in  Alaska. He                                                                    
understood  the importance  of transparency  in the  private                                                                    
equity field.                                                                                                                   
Mr.  Frampton responded  that the  private equity  portfolio                                                                    
was $16 billion,  and $200 million was allocated  to the in-                                                                    
state program. He  relayed that if the program  had not been                                                                    
realized,  the corporation's  ability to  achieve its  goals                                                                    
would not have  been inhibited. He did not want  there to be                                                                    
a law  that impeded  a private  equity firm  from performing                                                                    
transactions of its own volition  in the state. The in-state                                                                    
program was relatively small compared  to the private equity                                                                    
portfolio and if the program  did not exist, the corporation                                                                    
would not be inhibited.                                                                                                         
Representative Carpenter  commented that $200  million might                                                                    
seem like a a  small sum to APFC but it  seemed like a large                                                                    
sum in Alaska  politics as a whole. He was  not aware of how                                                                    
the money  was being spent  and he was trying  to understand                                                                    
the implications of the lack of transparency.                                                                                   
Mr. Frampton  responded that he  did not intend  to diminish                                                                    
the  importance of  the private  equity  program and  agreed                                                                    
that it was significant.                                                                                                        
Representative   Wool  added   that  $200   million  was   a                                                                    
substantial amount  of money for local  businesses. He asked                                                                    
if there  was a similar program  in place prior to  2019. He                                                                    
understood that  due to  the nature  of private  equity, Mr.                                                                    
Frampton  could not  reveal which  entity  or entities  were                                                                    
receiving the $200  million sum. He asked if  a recipient or                                                                    
recipients  could  be  revealed  if a  private  equity  firm                                                                    
cashed out and it resulted in a gain.                                                                                           
3:08:55 PM                                                                                                                    
Mr. Frampton  answered there had  been investments  prior to                                                                    
2019.  When he  first began  working at  APFC, there  was an                                                                    
Alaska  certificate  of  deposit   (CD)  program  where  the                                                                    
corporation  deposited some  of its  cash with  banks around                                                                    
the state.  The program  had been  discontinued, but  he did                                                                    
not  remember the  detailed history.  The corporation  owned                                                                    
its  building  in  Juneau  which  was  valued  at  about  $9                                                                    
million. There  had been some  past real  estate investments                                                                    
as well,  such as  retail properties.  He reported  that the                                                                    
first  time the  corporation had  employed a  private equity                                                                    
directive was  in 2019. There were  specific confidentiality                                                                    
provisions  in  all  of APFC's  private  equity  partnership                                                                    
agreements, and  other investors  that did not  have similar                                                                    
confidentiality  agreements  were  not able  to  access  top                                                                    
funds.  There   had  been  some  investments   where  public                                                                    
announcements  were made  and there  were other  investments                                                                    
for which details would be kept private.                                                                                        
CHRIS   POAG,   LEGAL   COUNSEL,   ALASKA   PERMANENT   FUND                                                                    
CORPORATION,  noted that  there had  been requests  for more                                                                    
transparency  and  the  corporation  was  working  with  its                                                                    
managers  to  come up  with  solutions.  He added  that  the                                                                    
corporation was following  state law, and the  ability to be                                                                    
protected  by  state  law gave  the  corporation  access  to                                                                    
higher  performing funds.  The particulars  of a  company in                                                                    
which APFC  invested would not  change once  the corporation                                                                    
exited  the company.  He thought  there was  a multitude  of                                                                    
reasons why  a company might want  investment particulars to                                                                    
remain  private.  However,  there  also may  be  cases  when                                                                    
companies  would  volunteer  to  disclose  information.  For                                                                    
example,  some  companies  had  regional  distributions  and                                                                    
could benefit from global  distributions with the assistance                                                                    
of a  private equity  partnership, and  it was  not uncommon                                                                    
for  companies to  publicly announce  such partnerships.  He                                                                    
thought that  everyone was trying  to protect  the Permanent                                                                    
Fund  and  that the  returns  from  private equity  were  an                                                                    
important factor in the fund's  success. He was working on a                                                                    
solution  to increase  transparency while  closely following                                                                    
statute, and he would get back  to the committee with a more                                                                    
detailed response.                                                                                                              
Mr. Poag suggested that if  the committee was more concerned                                                                    
about  the  implications  of  in-state  investment,  members                                                                    
should  revisit  AS  37.13.120(c).  He  emphasized  that  in                                                                    
regard  to   ESG  investments,  the  corporation   made  its                                                                    
investment decisions based on risks  and returns and did not                                                                    
examine social considerations simply  for the sake of social                                                                    
considerations.  He reported  that a  prior legislature  had                                                                    
placed a  stipulation in statute that  the corporation would                                                                    
prioritize in-state  investments if the investments  were as                                                                    
profitable   as   investments   from   other   states.   The                                                                    
corporation's  preference was  to make  in-state investments                                                                    
but  only if  it benefited  the  state. It  was a  difficult                                                                    
policy  decision and  that it  had been  a struggle  for the                                                                    
entire life  of the  fund. He  relayed that  the corporation                                                                    
was doing its  best to honor statutes  and state preference,                                                                    
but  it  was  difficult  to  please everyone  as  it  was  a                                                                    
contentious topic.                                                                                                              
Representative Wool responded that  he understood Mr. Poag's                                                                    
perspective.  He   would  look  at  New   Mexico's  fund  to                                                                    
determine how  it handled similar situations.  He noted that                                                                    
Alaska  also  had  the  Alaska  Industrial  Development  and                                                                    
Export Authority (AIDEA) which invested in the state.                                                                           
Representative   Edgmon   thought   transparency   was   not                                                                    
contemplated  when the  governing  statute  was crafted.  He                                                                    
asked   if  Mr.   Poag  would   like  to   comment  on   the                                                                    
interpretation of the statute.                                                                                                  
3:19:03 PM                                                                                                                    
Mr. Poag answered that AS  37.13.200 was enacted in 1980 and                                                                    
he  had not  been  able  to access  the  transcripts of  the                                                                    
historical discussion  around the statute. He  was uncertain                                                                    
if the statute was intended to  allow the board to invest in                                                                    
private  equity. He  credited the  legislature for  creating                                                                    
the statute because  he had learned that  the state's access                                                                    
to  private  equity was  contingent  on  the state  being  a                                                                    
Freedom of  Information Act (FOIA)  investor. The  state was                                                                    
required to be  subject to public records  requests in order                                                                    
to qualify.  He often used AS  40.25.120(a)(4) to illustrate                                                                    
that if  the corporation was given  proprietary information,                                                                    
the    corporation   was    obligated   to    maintain   the                                                                    
confidentiality of the information.  Through the statute, he                                                                    
could  reassure   entities  that  confidentially   would  be                                                                    
maintained. However,  APFC was  taking the request  for more                                                                    
transparent information  very seriously. He thought  that if                                                                    
the corporation had  foreseen the issue, it  might have been                                                                    
built into  the program during its  inception. He reiterated                                                                    
that external  private equity investments  were held  to the                                                                    
same standards as in-state investments.  It was difficult to                                                                    
discern  whether  the  corporation would  receive  incentive                                                                    
compensation  through the  program because  the program  was                                                                    
still  in   its  infancy.   He  concluded   that  investment                                                                    
decisions  were complicated,  but he  hoped to  provide some                                                                    
solutions  that would  appease the  rightful concerns  about                                                                    
Representative    Edgmon    appreciated    the    historical                                                                    
perspective. He  asked how public beneficiaries  of a public                                                                    
corporation could  be reassured that the  $200 million would                                                                    
not increase to  something more like $200  billion. He asked                                                                    
if there  was any public participation  or public disclosure                                                                    
in the process.  He thought that AS 37.13.120  was vague and                                                                    
that there was no inherent obligation for disclosure.                                                                           
Mr. Poag asked for clarification.                                                                                               
Representative  Edgmon  responded  that he  appreciated  Mr.                                                                    
Poag's characterization  of the risk threshold.  However, he                                                                    
wondered  if  there  was any  fiduciary  responsibility  for                                                                    
disclosure. He referred  to slide 18 and asked  how the $200                                                                    
million  was  incorporated  in  the  2022  asset  allocation                                                                    
target   pie  chart.   He  thought   the  need   for  public                                                                    
transparency would be even more  significant if $200 million                                                                    
became $200 billion.                                                                                                            
Mr. Poag responded that the  $200 million came about through                                                                    
a board  resolution. He envisioned  that if the  program was                                                                    
successful,   the  board   would  consider   continuing  the                                                                    
program, and the  discussion on the matter would  be open to                                                                    
the public.  The committee could  expect the  corporation to                                                                    
report on  the funds  as the funds  became realized.  He did                                                                    
not  think  it would  be  difficult  to provide  statistical                                                                    
reports  about the  investments, but  he emphasized  that it                                                                    
was simply too  early to know and there was  not enough data                                                                    
to report upon. He added  that language from the legislature                                                                    
was what led  to the genesis of the program.  He thought the                                                                    
ideas  that  the  corporation would  be  presenting  to  the                                                                    
legislature  at  a later  date  would  appease most  of  the                                                                    
3:26:40 PM                                                                                                                    
Co-Chair Foster noted the meeting  was almost over. He asked                                                                    
if  the  presenters  were  available   to  stay  beyond  the                                                                    
allotted meeting time.                                                                                                          
Ms. Mertz was available to stay.                                                                                                
Mr.  Frampton did  not have  any other  obligations and  was                                                                    
Representative Wool  referred to  AS 37.13.120. He  asked if                                                                    
there was  a reason why  it took as long  as it did  for the                                                                    
board to  determine whether the $200  million private equity                                                                    
investment  would produce  returns. He  asked at  what point                                                                    
would there be a decision  on whether it was successful, and                                                                    
would the public have access to the results.                                                                                    
Mr.  Frampton  replied  that there  had  been  a  resolution                                                                    
during  a  board meeting  in  either  September of  2018  or                                                                    
December of  2018 that dictated  the process.  He elaborated                                                                    
that APFC had  spent several months researching  the ways in                                                                    
which other states approached similar  mandates and then met                                                                    
with managers from various firms  to discuss the best way to                                                                    
structure the arrangement. He explained  that it was typical                                                                    
for private  equity firms to  invest a fund over  the course                                                                    
of three  to four years.  It had been  about two and  a half                                                                    
years since the  contract was released and  the two managers                                                                    
had  participated  well.  He shared  that  McKinley  Capital                                                                    
Management was fully invested and  Bering Capital was around                                                                    
two  thirds  invested. There  was  a  separate line  in  the                                                                    
performance  report   for  in-state  private   equity  which                                                                    
currently  showed a  one-year return  on the  program of  60                                                                    
percent. The return  was great but it was  still very early.                                                                    
Both managers had  one investment that had  gone public, and                                                                    
that performance was  good, but funds had  not been realized                                                                    
yet.  The success  of the  program was  somewhat subjective,                                                                    
and  it was  difficult to  determine at  what point  success                                                                    
could be claimed.  It was not uncommon to  re-up managers if                                                                    
they had realized around 25  percent of their investments if                                                                    
the managers had crafted a productive model.                                                                                    
3:33:16 PM                                                                                                                    
Mr.  Frampton quickly  addressed fund  performance on  slide                                                                    
26. He noted that private  equity had done well as according                                                                    
to the data from November 30, 2021.                                                                                             
Mr. Frampton skipped  slide 27 and ended his  portion of the                                                                    
presentation on  slide 29 with  benchmarks. He  thought APFC                                                                    
was  positioned to  outperform its  benchmarks and  that the                                                                    
last ten years  had been strong. However,  any investor must                                                                    
recognize that the  last ten years had been  a historic bull                                                                    
market.  He noted  that  real estate  had  been a  difficult                                                                    
market  for  the  corporation  and   would  be  an  area  of                                                                    
improvement  going forward.  Real  estate  was an  expensive                                                                    
market  and it  had taken  the  corporation a  few years  to                                                                    
adjust to  it. He reported that  2021 was the first  year in                                                                    
four  or  five  years  that the  corporation  had  beat  its                                                                    
benchmark  in   real  estate.   When  strategies   were  not                                                                    
eliciting  a  strong  performance,  the  corporation  worked                                                                    
diligently to make improvements.                                                                                                
Representative Johnson  noted that was a  prior presentation                                                                    
that indicated  there was  a heavy focus  on real  estate in                                                                    
the  fund,  and   there  was  some  desire   to  change  the                                                                    
allocation.  She asked  if real  estate sales  had decreased                                                                    
the heavy focus  on real estate and made  the portfolio more                                                                    
cohesive with the corporation's goals.                                                                                          
Mr. Frampton responded  that he did not  recall the instance                                                                    
Representative  Johnson was  referencing. In  the past,  the                                                                    
corporation allocated  closer to 12  percent of the  fund to                                                                    
real  estate. The  combination of  selling  the real  estate                                                                    
portfolio  in  2018 and  the  depreciation  of other  assets                                                                    
drove  the  real  estate  percentage   down  to  around  six                                                                    
percent.  The corporation  reset  the  target allocation  to                                                                    
eight percent and in the  last few years had focused heavily                                                                    
on building up  the apartment and industrial  portion of the                                                                    
fund.  He   would  like  there   to  be  more   real  estate                                                                    
representation within  the fund. He indicated  that APFC was                                                                    
working towards increasing the  allocation amount from eight                                                                    
percent to 12 percent.                                                                                                          
3:39:14 PM                                                                                                                    
Ms.  Mertz  continued  the  presentation  on  slide  31  and                                                                    
discussed distribution calculations.  She explained that the                                                                    
slide  showed the  two statutes  that dictated  the ways  in                                                                    
which the fund was  distributed: the statutory dividend fund                                                                    
transfer  calculation  in  AS   37.13.145(b)  and  the  POMV                                                                    
calculation in  AS 37.13.140(b). Both  distribution statutes                                                                    
required an appropriation  in order to make a  draw from the                                                                    
ERA. The  statutory dividend  fund transfer  calculation was                                                                    
based on realized income and  the POMV calculation was based                                                                    
on  value. There  had not  been an  appropriation under  the                                                                    
statutory  dividend fund  transfer  calculation since  2019,                                                                    
but it was still an  active statute and the amount generated                                                                    
from  the statute  were still  being monitored  and tracked.                                                                    
There  was a  lag built  in  to the  POMV calculation  which                                                                    
allowed for calculation of the  appropriation amount well in                                                                    
Representative Wool  understood that  the sums from  the two                                                                    
calculations were  not in  conflict because  as long  as the                                                                    
sum of the  five percent draw based on  the POMV calculation                                                                    
was  higher  than  the   statutory  dividend  fund  transfer                                                                    
calculation,  the  draw  would   cover  the  Permanent  Fund                                                                    
Dividend (PFD).                                                                                                                 
Ms. Mertz agreed  it was the case under  the given scenario.                                                                    
However, there  were scenarios  where the  sums could  be in                                                                    
conflict depending on the values involved.                                                                                      
Ms. Mertz moved  to slide 32 to discuss the  return and POMV                                                                    
draw. She noted that only three  and a half years had passed                                                                    
since the POMV  draw began and that it would  continue to be                                                                    
monitored as  time went on. Due  to the timing lag  built in                                                                    
to the  calculation, the  effective rate  was less  than the                                                                    
actual rate.  The timing lag  also created stability  in the                                                                    
draw  amount.  She  highlighted  that  although  the  actual                                                                    
performance  of  fund  over  the last  few  years  had  been                                                                    
volatile, the draw amounts had been stable.                                                                                     
3:43:47 PM                                                                                                                    
Ms. Mertz  advanced to slide  33 to explain  the resolutions                                                                    
the  board had  supported over  the years.  The board  had a                                                                    
long  history  of  supporting a  rules-based  draw  scenario                                                                    
dating  back to  2000.  Additionally,  two resolutions  were                                                                    
passed in  2018 supporting a rules-based  legal framework to                                                                    
govern  fund inflows,  outflow, and  internal transfers.  In                                                                    
2020, the  board passed a resolution  restructuring the fund                                                                    
from  its current  two account  system into  a single  fund.                                                                    
However,  the  board  acknowledged that  such  restructuring                                                                    
might not  be achievable.  If it  was not  achievable, there                                                                    
were additional recommendations in the resolution.                                                                              
Ms.  Mertz  turned  to  slide   34  and  reported  that  the                                                                    
Trustees' Paper  Volume 9 was  published in 2020.  The paper                                                                    
proposed  a  number of  reforms  that  would strengthen  the                                                                    
stability and  sustainability of the fund.  It also compared                                                                    
the Permanent  Fund to other  sovereign wealth  funds around                                                                    
the country  and the  world and  examined the  successes and                                                                    
failures.  The  paper  concluded that  successful  sovereign                                                                    
wealth  funds  operated  within a  rules-based  system  that                                                                    
allowed  the  funds  to perform  a  combination  of  saving,                                                                    
stabilization, and income-generation functions.                                                                                 
Ms. Mertz  continued to slide  35 to  address accountability                                                                    
on slide 35.  She relayed that APFC worked  diligently to be                                                                    
accountable  to  its  stakeholders  and  to  the  people  of                                                                    
Alaska.  The  corporation   published  accurate  and  timely                                                                    
information  on  its investment  work  in  an effort  to  be                                                                    
accountable.  She concluded  the presentation  on slide  36,                                                                    
which included links to APFC's website.                                                                                         
3:47:25 PM                                                                                                                    
Representative  Edgmon   thanked  the  presenters   for  the                                                                    
information and  thought the presentation helped  break down                                                                    
some  walls  of  misunderstanding.  There  were  topics  the                                                                    
committee would  not talk  about and  should not  talk about                                                                    
during the  current meeting, but the  information offered by                                                                    
the  presenters was  a  great place  to  start. He  recalled                                                                    
attending  an APFC  meeting in  2019 and  having a  positive                                                                    
exchange with  the trustees. He  stressed the  importance of                                                                    
continuing  the communication  between  the corporation  and                                                                    
the legislature.                                                                                                                
Representative Thompson  thanked the presenters.  He thought                                                                    
that there were some  missed investment opportunities in the                                                                    
past due to heavy procedural  requirements and was unsure if                                                                    
the issue was resolved.                                                                                                         
Ms.  Mertz  responded  that  the  corporation  had  specific                                                                    
exemptions   from  the   procurement   process  around   its                                                                    
investing. She thought  the corporation had been  able to be                                                                    
nimbler due to exemptions.                                                                                                      
Representative Thompson asked if  there were exemptions that                                                                    
allowed   the  corporation   to   act   quickly  on   timely                                                                    
Ms. Mertz responded in the affirmative.                                                                                         
Vice-Chair  Ortiz  echoed Representative  Edgmon's  comments                                                                    
and thanked the presenters.                                                                                                     
3:52:05 PM                                                                                                                    
The meeting was adjourned at 3:52 p.m.                                                                                          

Document Name Date/Time Subjects
APFC-HFIN 012522 Presentation.pdf HFIN 1/25/2022 1:30:00 PM
202220131_APFC Follow Up to HFIN on Jan 25.pdf HFIN 1/25/2022 1:30:00 PM