Each year the Board of Trustees sets the target allocation for the Permanent Fund’s investments. When considering the asset allocation each year, the Board doesn’t try to time the markets or focus on short-term market conditions. Instead, the Board builds a portfolio that will provide a more stable return under a variety of market conditions. The Board attempts to balance the anticipated risks within the portfolio with the return potential of different mixes of assets. The goal of this allocation is to protect principal in difficult markets, but as a result it may not keep up during periods of strong positive markets. This approach should create a portfolio that is less volatile than the broader markets, and would be expected to outperform other traditional allocations over longer-term horizons.
In 2009, the Board took a different approach to asset allocation that is a good fit for the goal of building an all-weather portfolio. Rather than taking the traditional tack of grouping investments by asset class, the Board decided to group investments by their risk and return profiles, and by the market condition that each group is intended to address.
Purpose: This allocation addresses deflation or market crises by investing in securities with low credit risk that usually perform better in times of volatility. It is also designed to let the Fund build up reserves over the course of the year to meet its expected liabilities, primarily the annual dividend payment each July.
Components: U.S bonds, non-U.S. bonds, and liquid investments with durations of less than 12 months.
Benchmark: 20% US Government 3 month Treasury Bills + 80% Interest Rates Benchmark which is: (64% BC Global Aggregate Treasury Hedged + 16% BC US Aggregate MBS)
Purpose: When the economy is performing well, most public and private companies are performing well. Investing in these corporations allows the Permanent Fund to benefit in times of growth and prosperity.
Components: U.S. and non-U.S. stocks, Corporate investment grade and high yield bonds, private credit and private equity
Benchmark: 20% Barclays Global Corporate Index + 80% MSCI All Country IMI Index
Purpose: The value of real assets hedges inflation risk, helping protect the Fund’s real value over time.
Components: Real estate, infrastructure and TIPS
Benchmark: 35% 3 Month US Treasury Bill + 35% MSCI US REIT + 20% FTSE Developed Core Infrastructure + 10% Barclays US Treasury Inflation-Protected Securities
Purpose: This allocation allows the Permanent Fund to invest in special opportunities and to take advantage of dislocations in the markets.
Components: Allocation strategies such as fixed income aggregates, absolute return, real return, emerging market multi-assets, distressed debt, other strategies as they arise.
Benchmark: 12.5% Cash & Interest Rates Benchmark + 65.6% Company Exposure Risk Benchmark + 21.9% Real Assets Risk Benchmark