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Alaska Permanent Fund nets 60 pct-plus from co-investments, directs

  • Assets Under Management: $65.4 billion
  • Actual Allocation to PE : $7.8 billion
  • PE/VC Strategy: commitments to PE firms and direct and co-investment
  • What’s new: the co-investment and direct investing strategy is netting impressive returns for Alaska Permanent Fund

Alaska Permanent Fund Corp’s four-year-old program for investing directly in private companies is netting returns of more than 60 percent. This return surpasses the performance of its traditional private equity program by more than 50 percentage points.

The Permanent Fund’s direct investments and co-investments were netting a 64 percent internal rate of return and 2.4x multiple as of Dec. 31, according to a presentation that will be delivered at the endowment fund’s May 23-24 board meeting.

Its portfolio of fund investments, which it launched in 2004, was netting a 12.8 percent IRR and 1.4x multiple as of the same date. The combined private equity portfolio, which includes opportunistic investments, was netting a 15.4 percent IRR.

Alaska Permanent Fund, a $65.4 billion sovereign wealth fund backed by the state’s oil revenues, formed its direct and co-investment program in 2014. Since then, Alaska’s investment team has allocated more than $1.4 billion to direct deals and co-investments, including $58 million in the first quarter, according to its investment reports.

The direct and co-investment portfolio carried a fair-market value of more than $2 billion as of Dec. 31.

Several major private equity limited partners sought to boost their investment team’s ability to take direct stakes in companies in recent years. Along with Alaska, institutions ranging from Saudi Arabia’s Public Investment Fund to State of Wisconsin Investment Board spent the previous half-decade expanding their capacity to underwrite and execute new investments alongside private equity firms.

Access to those types of investments historically came through private equity funds, whose managers often charge expensive annual management fees and 20 percent of the fund’s profits. Though costly from a human resources perspective, the successful implementation of a direct investment platform can yield substantial savings for institutional investors.

“Direct PE investments are driving returns” for Alaska, according to a Permanent Fund separate presentation, which was delivered at the board’s February meeting. That presentation pegged the carried interest savings generated by the direct investment program at $367 million.

The February materials also highlighted the near-double-digit investment multiple Alaska yielded through its investment in Juno Therapeutics, which Celgene Corporation acquired for around $9 billion earlier this year.

The sale valued Alaska’s stake in Juno at almost $1.3 billion, roughly 10 times the $129 million it had invested in the company. Positions in companies like Denali Therapeutics, HealthSun and Indigo are also valued at more than what Alaska had invested, according to Permanent Fund documents.

A source familiar with Alaska’s investment program said the endowment managed to generate significant deal flow through its existing relationships with private equity managers. The Permanent Fund committed $250 million to Dyal Capital Partners’ third fund in 2015 — its since allocated more than $83 million to two direct deals led by Dyal.

Alaska’s private equity program was valued at $7.8 billion as of Dec. 31, 2017, according to an investment plan included in its meeting materials. The Permanent Fund will likely deploy around $1.6 billion in new investments in the 2019 fiscal year, depending on market conditions.

Correction: An earlier version of this report misspelled Denali Therapeutics. The article has been updated.