Permanent Fund trustees defend long-term strategy as senators press liquidity and payout concerns

Juneau — Jason Brune, chair of the Alaska Permanent Fund Board of Trustees, and Devin Mitchell, executive director and CEO of the Alaska Permanent Fund Corporation, told the Senate Finance Committee on Feb. 11 that the corporation’s active investment program has delivered large nominal gains over the life of the fund but that committee discussion should focus on liquidity, inflation proofing and the statutory structure that governs spendable earnings.

The trustees’ presentation outlined the Permanent Fund’s asset mix and performance, and repeated the board’s recommendation — advanced in Trustee Paper 10 — that the state consider moving from the current two‑account structure to a single, endowment‑style account tied to a percent‑of‑market‑value (POMV) draw. The proposal is intended, the presenters said, to reduce the risk that statutory rules and large unrealized gains leave the state short of spendable earnings when markets turn.

Why it matters: The Permanent Fund now supplies more than half of the state’s unrestricted general fund revenue through the POMV transfer. Senators said they welcomed the fund’s returns but pressed officials on whether the fund has sufficient liquidity to meet the annual draw and on whether the current two‑account setup (principal vs. earnings reserve) imposes avoidable volatility on state budgeting.

“We do not make investment decisions like specific managers,” Brune said, explaining the trustees set ranges while staff make manager and security selections. He added the fund’s headquarters is in Juneau and “will always be in Juneau.”

Mitchell and investment staff described the fund’s diversification and performance. Mitchell said the Permanent Fund had generated roughly $91 billion in realized earnings over its life and showed about $15 billion in unrealized gains, with roughly $55 billion in total nominal gains cited for a recent 10‑year window. He also noted that active management since bringing work in‑house has added several billion dollars relative to the fund’s passive benchmark over a 10‑year period.

“We’re investing the Permanent Fund around the world … for the benefit of the residents of the state of Alaska,” Mitchell said, summarizing the fund’s mission and its long‑term orientation.

Investment staff walked the committee through asset allocation and liquidity: public equities, fixed income, real estate and private markets (private equity, private income, infrastructure). Jim Preece, deputy chief investment officer for public markets, described how internally managed fixed‑income portfolios have beaten their index benchmarks and how the board sets target allocations and bands intended to permit tactical responses to market dislocations. Alan Waldron, deputy CIO for private markets, said the private equity program has produced meaningful value relative to public indices and that co‑investment opportunities reduce fee drag.

Points of contention: Several senators warned a rising share of illiquid, private investments could strain the earnings reserve account — the pool of realized earnings available for appropriation — if realizations lag. Senator Gary Stedman pressed the point, saying that if too much of the fund’s gains remain unrealized the state could lack cash to meet its annual draws without selling illiquid assets at unfavorable times.

“If you run too high of an allocation into the illiquid investments, we’re gonna have … to liquidate some illiquid investments and the whole process of trying to get to an endowment is gonna collapse on our heads,” Stedman said.

Mitchell and trustees acknowledged the tradeoff between return and liquidity. Mitchell said unrealized gains in private markets are less liquid by design and that the fund’s private equity portfolio is mature and has been cash‑flow positive in most recent quarters. He noted staff and trustees hear the legislature’s concerns and said statutory direction could be used to require specified liquidity targets if the legislature chooses to do so.

On the two‑account debate, the trustees’ paper argues the existing principal/earnings reserve split can leave the state exposed during market downturns because much of the fund’s growth is unrealized and therefore not immediately spendable. The trustees recommended statutory changes to create a single endowment model and suggested the legislature could preserve a principal floor (for example, preserving a specified principal balance) while moving to a market‑value draw.

Numbers discussed (as presented to the committee): the board described roughly $91 billion in realized investment earnings over the life of the fund and about $15 billion in unrealized gains; the earnings reserve account balance shown in the presentation was about $9.1 billion, with a projected POMV transfer in recent budgeting near $3.8–4.0 billion and an FY25 inflation‑proofing appropriation of $1 billion. Presenters said realized statutory net income has averaged roughly $1.7 billion per year in recent seasons absent active realizations; overall 10‑year averages cited put realized statutory net income near $4 billion.

Committee response and next steps: Senators said they support protecting the fund from short‑term raids and noted the political and modeling work required to change the statutory structure. Several members asked the trustees and staff for more modeling on alternative draw rates (for example, ranges around 4–5 percent) and for analyses linking asset allocation, liquidity and probability of long‑term success. The trustees said they would continue to engage with the committee and that they will provide materials such as Trustee Paper 10 to new members.

No formal action or vote occurred at the hearing; the session was a briefing and question‑and‑answer period. Committee members said they will review modeling and consider whether to pursue statutory or constitutional changes that would alter how the Permanent Fund’s earnings are treated.

Tying it together: The presentation framed a central policy tradeoff — higher expected returns from a diversified, partially illiquid portfolio versus the legislature’s need for predictable, spendable earnings. Trustees and staff defended the fund’s long‑term performance while acknowledging the legislature’s liquidity and payout concerns and urging further legislative discussion and modeling before any structural changes are adopted.

The committee adjourned and set follow‑up briefings on the operating and mental health budgets for its next meeting.