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.
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: The cash allocation is 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: liquid investments with durations of less than 12 months.
Benchmark: 3 month T-bill
Purpose: Securities with low credit risk usually perform better than other investments in times of deflation or market crises.
Components: U.S. Treasury bonds and non-U.S. government bonds.
Benchmark: Barclays Global Treasury Index (Hedged)
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, bank loans and private equity
Benchmark: 20% Barclays Global Corporate Index + 80% MSCI All Country 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: 75% NCREIF + 25% Barclays US TIPS Index
Purpose: This allocation allows the Permanent Fund to invest in special opportunities and to take advantage of dislocations in the markets.
Components: Absolute return, distressed debt, commercial mortgage backed bonds, other strategies as they arise.
Benchmark: Company Exposure Benchmark