Alaska Permanent Fund will likely commit $1 billion to private equity in the coming year, roughly half of what it has placed with managers in recent years.
Alaska’s investment staff has expressed skepticism about private equity in recent months, arguing that the asset class appears overvalued while also worrying about impending markdowns. Alaska chief investment officer Marcus Frampton has proposed reducing the $75.7 billion system’s target allocation by 4 percent by FY 2025.
Frampton announced the likely pacing schedule of $1 billion at the fund’s Board of Trustees meeting held on February 15. Buyouts viewed a broadcast of the meeting.
Frampton said Alaska may also narrow the number of funds it will back.
In addition to his concerns about private equity, Frampton also said a reduced allocation to private equity would increase Alaska’s flexibility going forward if market conditions change.
“There’s an inherent optionality in going to the lower end of our range of commitments from over the past 10 years. There is an optionality to get more aggressive if we want. But we lose that optionality if we go with the high end of our range,” Frampton said.
Currently, Alaska targets 17 percent of its total fund to private equity. It initially planned to increase that target to 18 percent in FY 2024 and 19 percent in FY 2025.
Frampton recommended new targets of 16 percent in FY 2024 and 15 percent in FY 2025 to the board.
The board may take action on Frampton’s proposed asset allocation changes at its May meeting.
In a separate presentation, chief risk officer Sebastian Vadakumcherry said Alaska’s private equity portfolio held $6.3 billion in unrealized gains, with $1.1 billion of that in funds dating back at least eight years.
“We still have all of these unrealized gains, and when will we realize these? Some of these are going to be marked down if more fair market valuations are coming at some point,” Vadakumcherry said.
Despite the $1.1 billion in unrealized gains from the older end of the portfolio, Frampton said he does not plan on participating in a secondaries sale because of the big discount sellers face right now.
Alaska announced it made $186 million in eight private equity commitments during the second quarter of the fiscal year, with $100 million headed into a co-investment opportunity with Crestline AK Advisory III.
The average size of the remaining seven commitments was just over $12 million, which is lower than the typical size of individual commitments from Alaska. For example, the system made six commitments in the fourth quarter of FY2022 with an average size of $32 million.
Frampton said the size of each commitment was determined on a case-by-case basis and not due to the potential decrease to Alaska’s private equity target. “But, on margin, we are writing smaller checks,” Frampton said.
Smaller commitment sizes could result in Alaska losing limited partner advisory committee seats on new funds, according to Alaska’s private equity director Allen Waldrop, after being asked by a board member.
Frampton said LPAC seats on private equity funds were only one consideration when determining commitments.
“I would consider making a large enough commitment to a fund if we really want to be on the LPAC. But, the drawback is that being on an LPAC increases certain risks and makes it harder to exit a position. I would put having the right exposures in the market ahead of having a board seat, but it’s a judgment call,” Frampton said.
Alaska’s private commitments over the past quarter included:
• $10 million to Goodwater Infinity III
• $15 million to Goodwater V
• $100 million to a co-investment opportunity with Crestline AK Advisory III
• $15 million to WestView V
• $15 million to GTCR XIV
• $15 million to Incline VI
• $8 million to HV IX Growth
• $8 million to HV IX Venture
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