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Alaska Permanent Fund Corp. Board approves “real return” candidates, reviews stock portfolio

DEC 3 - The Alaska Permanent Fund Corporation Board of Trustees authorized a pool of five real return manager candidates, from which four will be hired to manage real return mandates, at its regular meeting on December 2. Each firm will oversee $500 million.

"These managers will be limited to investing in the same asset classes and at the same risk level that we have approved for the Fund as a whole, essentially creating four mini-funds within the Permanent Fund" said Board Chair Steve Frank. "We believe that Trustees and staff will benefit from watching the asset allocation decisions that these firms, some of the best in the business, make for these mini-funds."

The five finalists are AQR Capital Management; Bridgewater Associates; Grantham, Mayo, Van Otterloo and Company (GMO); Goldman Sachs Asset Management; and Pacific Investment Management Company. All five managers have demonstrated their ability to produce superior risk-adjusted returns, with lower volatility, smaller drawdowns and higher liquidity than the other search candidates. It is expected that the four final firms will be selected and funded by March 30, 2010.

The Board heard a presentation on mezzanine debt, a type of investment that is higher than equity in the capital structure, but provides greater return potential than bonds. Following the presentation, the Board approved a motion directing staff to work with Callan Associates to search for a manager experienced in this type of investment.

Presentations were also made on the following items during the two day meeting that began on December 1:

  • An overview of the risk dashboard. This report, which is still under development, will allow Trustees and staff to more easily monitor the Fund's investment risk from a number of perspectives.
  • A discussion of the benefits of active and passive management of the Fund's stock portfolio mandates, and the areas where it is beneficial to use one style over the other.
  • An "active risk framework" approach to managing the stock portfolio that staff has under consideration. Under this approach, the appropriate amount of active-management risk for the portfolio would be determined within the Board's total risk guidelines for the Fund, and that risk would be budgeted when selecting and retaining external managers for the stock portfolio.
  • A process for evaluating the value that active managers provide above their benchmarks (alpha) and how they achieve their performance.
The next regular Board meeting is scheduled for February 23 - 24 in Juneau.

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