Kenai receives positive review of permanent funds; APCM urges no allocation changes, requests work session

Alaska Permanent Capital Management (APCM) presented its annual review of the City of Kenai's permanent and custody investment portfolios at the Feb. 4 council meeting, saying the city's permanent fund posted a strong 2025 and remains on track for long-term targets.

APCM's presenter told the council the permanent fund had total contributions of $22,900,000, withdrawals of $18,600,000 and a market value of $39,900,000 at Dec. 31, 2025. "If someone was to ask you how much a permanent fund has earned in dollars since inception, it's been $35,600,000," the presenter said, and noted the fund's average annual return since inception is about 7.79% while the calendar-year 2025 return was 13.4%.

Council members were given multiple portfolio views: historical market value, calendar-year returns and APCM's forward-looking projections. APCM said its 10-year average return expectation is roughly 6.7% (range ~6.4% to 7.0%) and emphasized that the portfolio remains aligned with the city's adopted investment policy and strategic weights. The firm attributed strong recent returns in part to positioning that captured gains in equity markets and selective exposure to companies benefiting from the national AI build-out.

APCM also reviewed the city's custody portfolio of short-duration government and agency securities (a portfolio APCM has managed since November 2024), describing a current market value of roughly $35.1 million and a one-year return just north of 5% versus a cash benchmark near 4.17%. APCM said it has added high-quality agency securities that yielded more than comparable treasuries and described these holdings as government-backed and investment grade.

On policy recommendations, APCM recommended no immediate changes to the permanent fund's strategic allocation but urged the council to consider limited changes to the constraints governing custody/reserve portfolios. Specifically, APCM asked for a work session to discuss allowing greater maturities and the potential addition of high-quality corporate (investment-grade) bonds to improve yield and to lock in rates should interest rates decline. City Manager Eubank confirmed the current city code limits securities to maturities under five years and caps the share of longer maturities in the custody account; he and APCM said they will return to a work session to present concrete options.

Council members asked about risk: Councilmember Patty asked whether the agency holdings were government-backed and investment grade; APCM replied they were callable agencies such as Fannie Mae and Federal Home Loan Bank and described them as government-backed and investment grade. Councilmember Daniel raised questions about liquidity constraints and whether the custody pool was intended as a short-term cash reserve; APCM and the city manager said code and staff practice drove the conservative posture and that the work session would explore rules changes to better match the portfolio to current reserve needs.

The council later adopted resolution 2026-11, which designates the investment and allocation plan and performance benchmarks for the city's permanent funds for calendar year 2026. Council also scheduled an APCM work session for April 1 at 4:00 p.m. to examine potential amendments to Kenai's investment code and reserve portfolio rules.

What happens next: APCM will return for a council work session on April 1 to present specific options for modifying maturity constraints and adding narrowly defined asset classes for reserve accounts. Any change to the city's investment rules would require council action to amend municipal code.