Alaska Permanent Fund Corporation Reconsiders Private Equity Allocation Amidst Changing Investment Landscape

Alaska Permanent Fund Corporation (APFC) is once again reevaluating its investment strategy, particularly in private equity, after decreasing its allocation in 2023. The decision to reduce its private asset allocation from 19 percent to 15 percent last year was based on the belief that better risk-adjusted returns could be found in other asset classes like fixed income and hedge funds.

Now, as the APFC Board considers whether to make a change, they have heard from industry experts like AQR, Pathway Capital Management, and Callan on the potential benefits and risks of adjusting their private equity allocation. The decision is still pending, but if changes are made, it could impact investments in areas such as real estate, hedge funds, and gold.

Currently, APFC’s private equity portfolio is valued at $15 billion, with the largest single exposure being around $900 million. Under the leadership of CIO Marcus Frampton, the organization is shifting towards a strategy of making smaller investments in outperforming middle-market private equity funds, rather than large-scale funds. This approach allows them to access competitive investment opportunities and maintain a diversified portfolio.

In addition to private equity, Frampton’s team is navigating the high interest rate environment by exploring opportunities in fixed income investments. With the potential for higher returns in fixed income assets like treasuries and investment-grade bonds, APFC is optimistic about the possibilities for lower-risk opportunities. They have also brought their high yield fixed income operations in-house to reduce costs and enhance returns.

Furthermore, APFC is exploring real estate investments, particularly in development assets, where they see potential for higher returns. By controlling these investments in separately managed accounts and focusing on long-term holdings, they aim to mitigate risks and build a safe portfolio of high-quality properties.

One unique aspect of APFC’s portfolio is its small allocation to gold, which has been held since 2019. This allocation serves as a hedge against economic uncertainty and the value of the dollar, reflecting APFC’s cautious approach to navigating market conditions.

Overall, APFC’s reevaluation of its investment strategy reflects a proactive approach to maximizing returns and managing risks in a dynamic market environment. As they continue to assess their options, the organization remains focused on achieving their return targets while maintaining a diversified and resilient investment portfolio.