6. State Assets

6.7 Investment Management

Who Manages the Assets?

The Alaska Department of Revenue, Treasury Division and the Alaska Permanent Fund Corporation manage most of the financial assets of the state. However, each of the state's independent public corporations except the Alaska Science and Technology Foundation manages its own cash assets, and the University of Alaska manages it own endowment funds.

The Treasury Division:

• manages funds used to finance operation of the state government
• provides staff for the Alaska State Pension Investment Board (ASPIB) which manages several public employee retirement funds
• invests a portion of the University of Alaska Endowment and Exxon Valdez Oil Spill Trust Endowment
• manages state endowment funds not managed by the Permanent Fund Corporation
• manages a portion of the Alaska Student Loan Fund and various state health and long-term care insurance funds

The Alaska Permanent Fund Corporation is responsible for investing the

• Alaska Permanent Fund
• Mental Health Trust Fund
• Alaska Science and Technology Endowment Fund
• International Trade and Business Development Fund

Investment Policy

Unless required by law, the individual state funds are pooled for investment purposes to maximize their earning potential by taking advantage of economies of scale and allowing the smaller funds to participate in investment opportunities that would otherwise be unavailable to them.

The allocation of assets is based on several criteria including the return objectives, risk tolerance, liquidity requirements, and legal requirements for each individual fund. For example, where the state needs to spend the assets of a fund relatively soon—in other words, where the fund has a short-term investment horizon—the fund should be invested in assets such as short-term government securities whose value is unlikely to decline substantially in the near term. If the fund has a relatively long-term investment horizon, it is appropriate to invest a portion of the fund in riskier assets, such as stocks. Riskier assets are more likely to decline substantially in value in the near term but are also more likely to earn higher returns over the longer term.

Pooled investments managed by the Treasury Division are invested in one of three types of investment pools:

Short-term Fixed Income Pool. Assets in this pool are "... comprised of money market instruments, U.S. Treasuries, mortgage- and asset-backed securities, corporate debt, and other U.S. dollar denominated bonds." Individual fixed rate secruities in this pool are limited to 14 months to maturity.

Intermediate-term Fixed Income Pool. Assets of this pool are "... U.S. Treasuries, U.S. Government agency debt, corporate bonds, mortgage- and asset-backed securities, other U.S. dollar denominated bonds, and an equity ownership in the Short-term Fixed Income Pool."

Broad Market Fixed Income Pool. Assets of this pool are "... comprised of U.S. Treasuries, U.S. Government agency debt, corporate bonds, mortgage- and asset-backed securities, other U.S. dollar denominated bonds, and an equity ownership in the Short-term Fixed Income Pool."

The Alaska Permanent Fund is invested in a portfolio of U.S. and foreign stocks, corporate and U.S. government bonds, U.S. real estate, and certificates of deposit of Alaska banks. Alaska law places upper limits on the portion of the portfolio that can be allocated to stocks (currently 55 percent), real estate, and certificates of deposit. The corporation establishes targets for the allocation of the portfolio from time to time to meet their long-run goal of a 5 percent rate of return after taking into account inflation.

More information on Department of Revenue, Treasury Division's investment process and investment policies for each fund can be found in Investment Policies and Procedures Manual.

Information on investments managed by the Alaska Permanent Fund Corporation can be found on their web site, http://www.apfc.org.

The GeFONSI Pool

Most of the funds managed by the Treasury Department—about 120—are lumped together into what is known as the GeFONSI pool, which means the "General Fund and Other Nonsegregated Investments." Most of these funds are small, and the balance in this Pool is about $1 billion, of which the General Fund, at about $300 million, is the largest.

Half the funds in the GeFONSI Pool distribute their earned income to the General Fund and the other half retain their income. Click for a more complete description of the GeFONSI and the funds that it includes.

Source: Alaska Department of Revenue, Spring 2002 Revenue Sources Book, State of Alaska, Department of Revenue Treasury Division, "Invested Assets Under the Investment Authority of the Commissioner of Revenue, Combined Financial Statements," June 30, 2001 or go to the Financial Statements Section on http://www.revenue.state.ak.us/treasury/.

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