Alaska Permanent approves $1.6 bln PE pacing plan, weighs secondary sale

  • Why this is important: Alaska keeps fiscal 2020 pacing at fiscal 2019 level, has room to invest more via secondaries
  • AUM: $65 bln
  • PE target: 13 pct; allocation: 12.3 pct
  • Reach the fund: or +1 907-796-1500

Alaska Permanent Fund Corp plans to commit $1.6 billion to private equity funds in fiscal 2020, although it has room to invest more if it goes through with secondary sales or sees opportunities that are too good to pass up.

The $1.6 billion pacing target is the same level that the $65 billion fund set for the fiscal year ending in June 2019, and Alaska is within $10 million of reaching the 2019 target, according to Steve Moseley, head of alternative investments for the fund.

Moseley, speaking at the fund’s May meeting, said $1.6 billion in commitments would put Alaska near its 13 percent PE target, and is based on assumptions of 2 percent overall fund growth and a 12 percent annual net return for PE.

The target does not include potential secondary sales, which would give Alaska more room to invest, clear out older commitments to non-core managers and balance the fund’s private equity portfolio, Moseley said.

“It would give us some flexibility, and also allow us to prune years, funds, geographies, where we have [excess] exposure,” Moseley said. “There are a few [PE relationships] that are stale, that are for various reasons not attractive core partners anymore, and we could sell those interests while there’s still a strong market for it.”

A secondary sale could also insulate Alaska Permanent Fund from the so-called denominator effect, in which a market crash causes the illiquid PE allocation to rise simply because the value of the overall portfolio declines. The denominator effect is one of the reasons Alaska is looking at a secondary sale, and one of the reasons the fund is being disciplined with pacing, Moseley said.

Alaska could also increase its target allocation to PE, which might give the fund more leverage to make commitments on favorable terms, Moseley said. But a larger program also comes with different risks.

“We would have more negotiating leverage if we were writing bigger checks,” Moseley said. “At some point I think we would start to miss out on smaller opportunities, and I wouldn’t want to do that.”

The pacing plan is flexible and allows the fund to deploy $550 million more or less than the $1.6 billion target, based on market conditions, opportunistic deal flow and transaction timing.

Alaska Permanent Fund began investing in PE in 2005, and its PE portfolio is worth about $8 billion, or about 12.3 percent.

Alaska has also bolstered its PE portfolio by taking direct ownership stakes in private markets investment managers. In 2018, Alaska Permanent Fund partnered with Public Institution for Social Security of Kuwait, RPMI Railpen and Wafra to set up an organization called Capital Constellation, which provides seed capital to new private equity and alternatives managers.

Constellation was founded with $700 million in capital, with an expected $1.5 billion in additional funding over the next five years. That investment is working well so far, with the new GPs already beginning to attract institutional capital, according to Moseley.

Action Item: View the materials from Alaska Permanent Fund’s May meeting here