The leaders of the $77 billion Alaska Permanent Fund have voted unanimously to adopt a strategic plan that calls for borrowing up to $4 billion in order to increase the amount of money available for investments, looking to earn more on the investments than the fund would owe in interest on the debt.
The Feb. 16 board of trustees’ vote, however, has limited effect: The borrowing could take place only if the Alaska Legislature and Gov. Mike Dunleavy change state law to allow it.
The Alaska Permanent Fund is the No. 1 source of general-purpose state revenue for public services and the annual Permanent Fund dividend. Each year, the fund transfers more than $3.5 billion to the state treasury, and members of the board of trustees hope to increase that amount by growing the value of the fund faster.
“This is going to require policymakers, the Legislature, the governor to get their minds wrapped around a concept,” said Deven Mitchell, the corporation’s executive director.
Public comments on the borrowing plan generally opposed the idea, but the six members of the corporation’s board of trustees said in prior meetings that they felt the approach gave fund managers a valuable new tool to increase the value of the Permanent Fund.
That tool, known as leveraging the fund’s accounts, is used widely by other pension funds and endowments, some of which borrow more than 25% of their funds’ value.
If investors’ earnings are greater than the rate of interest on the loan, the approach can boost returns beyond what’s normally possible. If they fall short, the strategy can compound losses.
Members of the board of trustees said they recognized public discomfort with the concept and amended the plan to involve a maximum of $4 billion instead of 10% of the fund’s value, which would have been close to $8 billion.
“I think 10% is concerning to many people,” Mitchell said.
Mitchell suggested that if the fund’s leverage plan is adopted by the Legislature and succeeds, then trustees will ask for permission for more money.
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