The investment goal of the Board of Trustees is to produce an average annual real rate of return of 5 percent over the long term. To achieve the target return, each year the Trustees set a target asset allocation that determines the types and percentages of investments.
Over thirty years the Trustees have gradually guided the Fund from a portfolio entirely in bonds to a portfolio that is diversified across asset types. As new investment opportunities appear, the Trustees evaluate these investments to determine if they will fit within the Fund’s risk and return targets.
Fund assets are invested to earn income. As all investments carry some degree of risk, the Fund is invested prudently to reduce the risk.
Alaska’s Constitution and state law set out certain requirements for the Fund’s investments:
- The Fund can only invest in income-producing investments.
- The goal of the Fund’s investments should be to maintain the safety of principal while maximizing total return.
- A ll investments must conform to the prudent investor rule. This fiduciary standard requires that investment decisions be made with the prudence, intelligence and discretion expected of an institutional investor.
Board Investment Philosophy
- Risk Posture: The Board’s overriding investment objective for the Fund is to maintain the safety of principal while maximizing total return. Therefore, it will always act to ensure that the level of investment risk in the Fund is prudent and does not jeopardize that primary objective.
- Return: The Board believes that, over the long term, there exists a relationship between the level of investment risk taken and the rate of expected investment return. It believes that the assumption of a moderate level of risk is reasonable and justified to enhance potential long-term returns, understanding that it will produce a wider range of expected returns than more conservative asset mixes. This range of expected returns will narrow as the investment time horizon is lengthened, which fits well with the Fund’s role as a long-term investor.
- Diversification: Diversification is the primary technique used by the Board to reduce risk and enhance returns.