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