Each year, the Trustees sets the target allocation for the Permanent Fund’s investments. The Board attempts to balance the anticipated risks within the portfolio with the return potential of different mixes of assets. When considering the asset allocation, the Board does not try to time markets or focus on short-term market conditions. Instead, the Board engineers a portfolio that will provide a diversified and compelling long-term return under a variety of potential market conditions.
At the 2016 Annual Board of Trustees meeting, the Trustees approved a target allocation structure that is organized by growth and income investment objectives, and reflects the liquidity character of each investment. The shift to organizing by Investment Objective and Liquidity reflects APFC’s focus on increasing the efficiency of its portfolio, identifying return targets commensurate with the risks undertaken for each investment.
The new structure defines 6 asset classes organized according to "investment objective" (i.e., Growth or Income) and liquidity—(1) Public Equities, (2) Fixed-Income Plus, (3) Private Equity & Special Opportunities, (4) Real Estate, (5) Infrastructure, and (6) Absolute Return Strategies, in addition to cash and asset allocation.
Asset classes are managed by a dedicated team of investment professionals focused on achieving best-in-class overall performance, and include:
Public equities (stocks) represent a share of ownership in public exchange-traded companies. The Permanent Fund owns shares in more than 3,000 corporations around the world diversified by investment type and geography.
Bonds represent a form of fixed income and are a special kind of loan. A bond “issuer” – a corporation or government – sells bonds that promise a preset return of interest to the purchaser and in effect borrows money for a pre-determined period of time. This asset class also includes listed securities whose returns are driven primarily by the regularized income that they generate such as Real Estate Investment Trusts (REITs).
Real estate includes properties across the United States and internationally, including malls, office buildings, hotels, apartment complexes, and industrial areas. The real estate allocation has the ability to provide inflation protection and enhanced diversification, as real estate volatility has not typically been correlated with other asset classes.
APFC’s portfolio management professionals make some investments directly into private (not exchange traded) companies and into funds that invest into them. By purchasing companies, APFC expects to gain access to those companies’ assets and revenue sources which can lead to higher returns. APFC uses advisors to evaluate the firms prior to investment.
Investments designed to provide the APFC’s portfolio with a steady source of income from private markets investments. Includes investments in infrastructure assets, private credit and income-related special opportunities.
Private investment partnerships, known as hedge funds, which invest in a broad range of securities and financial instruments to achieve a target return that is uncorrelated with traditional asset classes, is managed to a tightly controlled risk-of-loss, and should be expected to provide favorable performance even in periods of losses in traditional asset classes.
Investments that spread risk over many different areas, capturing returns from multiple asset classes while reducing volatility of individual return streams. Their primary goal is to create an asset mix that will provide with the optimal balance between risk and return. Cash generally represents money market investments with durations of less than 13 months that adds stability and diversification relative to other asset classes. The amount of cash held is determined by APFC’s investment goal, time horizon and risk tolerance.