The Permanent Fund Dividend is in the news a lot, but where does the money come from? The Alaska Permanent Fund Corp. manages the $52 billion fund, and its investment earnings determine the size of the dividend.
So what is it like to manage this much money? Jim Parise is the director of fixed income for the corporation, and from his office in Juneau he manages about $10 billion of Alaska’s money. He’s one of just 18 people managing investments at the fund.
“We all are managing billions each, but we think of it as units,” he said. “If you think of it as actual money, you’d go crazy.”
For perspective, the fund is worth every piece of taxable property in Juneau a dozen times over, according to the Juneau Assessor’s office, which had just over $4 billion of taxable property on the books for 2015.
Even with billions of dollars on the line, Parise seems to take it all in stride. He talks calmly about staying the course in the face of market downturns. During the early days of the Great Recession, the fund was literally losing millions of dollars a day.
“2008 was really, really tough,” he said, “because no matter what you did you were getting hurt … we were down quite a bit, but that’s when you’re really tested to see whether or not your philosophy and the way that you manage and your discipline — the way that you manage money works.”
Parise says they had to trust their convictions and analysis to make some decisions that felt counterintuitive at the time.
“We did a lot of analysis and we had some pretty high conviction bets on at the time that proved to be true,” he said.
Even with billions of dollars on the line, Parise says the investment team manages to stay calm no matter how the market is doing.
“Whether it’s going well or going poorly – it pretty much looks the same. It’s just a steady group of people that have been doing it a long time and know what they’re doing.”
Part of staying on top of those ups and downs is being in close communication with traders in New York. That means coming to work at 5 a.m. so he’s around for the start of the day on the East Coast.
“That’s when an issuer like Microsoft may decide to bring a bond deal,” he said. “They do it first thing in the morning. And so we have to be here to be able to say we’d like some of those bonds or not. … If we came in too much later then we would miss out on those opportunities.”
When he’s not on the phone with New York, a lot of Parise’s day is spent on trading, research, watching the markets and analyzing the fund’s portfolio. Most of the trading is done on the computer these days, but sometimes it still comes down to a negotiation on the phone, when all that research pays off.
“The trader wants to buy them at a certain price, I want to sell them at a certain price,” he said. “And we have to agree on a price, so we go back and forth. It’s not just a guess – we have, they have very good data, we have very good data, and we use it against each other to try and figure out what the best price is.”
Parise says he often knows when to buy or sell a corporate bond based on how it compares to a “natural” price level that their analysis predicts it will return to. So if the demand – and the price – dips below this natural level, he might take the opportunity to buy on the cheap, counting on the price to rebound later. Or he might sell a bond that goes above this level before it comes back down.
This strategy requires patience, and in general the fund relies on taking a long-term approach.
“The nice thing for the fund is we have an infinite time horizon,” said Executive Director Angela Rodell. “So we can make 5-, 8-, 10-year investments, knowing we don’t need to see the returns on that, or realize the returns on that in the next year.”
That kind of long-term outlook could come with some tradeoffs.
Gregg Erickson owns an economic consulting firm, Erickson & Associates. He says that there may be a disconnect between long-term results and who’s responsible for them.
“The problem with that in my view is that the Permanent Fund is a political organization that’s run on behalf of the people of Alaska,” he said. “And how are the people of Alaska able to judge whether they’ve done well or not if their time horizon is 15 years? By the time 15 years rolls around and you can prove — or 10 years, and you can prove that they’ve done either poorly or well, the people who were responsible for that are long gone.”
The governor appoints the members to board trustees that lead the Permanent Fund Corporation.
Erickson says evaluating the fund’s performance is also difficult because it’s unique – there just aren’t that many multibillion dollar funds with similar goals that you can use for comparison. One possibility is the Public Employees’ Retirement System and the Teachers’ Retirement System, or PERS and TRS.
PERS and TRS have slightly higher returns over time – 6.7 percent compared to 6.4 percent for the Permanent Fund when you look at annualized total returns for the past 10 years. It’s important to remember that there are different goals at play, which means different investment strategies: PERS and TRS have to bring in a certain amount of money to cover retirement benefits, while the Permanent Fund Corp. places a higher priority on preserving the value of the fund.
Ultimately, Parise says he has faith in his colleagues at the Permanent Fund.
“Everybody here is very, very passionate about what they do,” he said. “And they’ve dedicated themselves to it, and I think that Alaskans should take comfort in the fact that there’s people here that really care about the Permanent Fund, they care about Alaska, and they care about managing money.”
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