LPs

All eyes on Alaska this week as Permanent Fund board considers PE cut

Alaska CIO Marcus Frampton has a contrarian view on the asset class and looks to reduce allocations.

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Alaska Permanent Fund’s board will likely make a long-awaited decision on lowering its private equity target this week.

Alaska CIO Marcus Frampton said in recent meetings that he is as “bearish on private equity as I ever have been in my career.” His contrarian view has stood out as most institutional investors believe the asset class still shows strength going forward.

At its May 17 meeting, the board will consider slashing the $76.4 billion system’s PE target to 15 percent by FY 2025 – effectively cutting the target by 4 percentage points.

Alaska’s current PE target stands at 17 percent. Under its current investment policy, the system planned to increase its PE target to 18 percent in FY 2024 and 19 percent in FY 2025.

The proposed changes stem from Frampton’s remarks at board meetings over the past few months, where he argued that valuations indicate an expensive asset class, with managers paying steep multiples for their investments.

Many LPs and advisers have advocated for increasing private equity exposure due to a track record of successful vintage years coming from times of dislocation, such as those after the global financial crisis.

Frampton also noted that institutional investors have dramatically ramped up allocations to private equity since that time, which may have changed market dynamics.

Investment staff is proposing the addition of growth equity into the private equity strategies, with an allocation up to 25 percent of its PE basket.

Staff also is proposing to allocate between 10 percent and 45 percent to venture capital and between 25 percent and 75 percent to buyouts and acquisitions. Currently, staff can allocate between 5 percent to 45 percent to VC and between 25 and 70 percent to buyouts.

Staff also has proposed a new asset class known as tactical opportunities, which would have a 2 percent target allocation starting in FY 2024. The proposed tactical opportunities portfolio may invest in public and private market opportunities.