Alaska bets $200 mln on in-state investment program

Alaska Permanent Fund Corporation committed $200 million to a new in-state investment program.

“The goal of the Emerging Manager Program is to seed new private equity or venture capital fund managers in Alaska,” spokesperson Paulyn Swanson told Buyouts in an email.

An Alaska statute already instructs Alaska Permanent to prefer in-state investments as long as they have “equivalent risk and expected return comparable to or better than a similar non‐Alaskan investment,” according to its website. That means the program is required to target a rate of return and risk similar to non-Alaskan investments, Swanson told Buyouts.

According to a presentation from Alaska Permanent’s Board of Trustees, the program’s goal is to have 2 percent of the fund invested in-state by 2020, and work up to 5 percent by 2023.

Two external managers will run the program. Alaska committed $100 million to McKinley Capital Management, based in Anchorage, to focus on private equity.

Barings, based in Charlotte, North Carolina, also received a $100 million commitment and will focus on infrastructure and private credit, Alaska staff told Buyouts.

In a press release, McKinley CEO Rob Gillam said the firm planned to assemble a team of Alaska industry experts to advise on how to proceed with the program. He added that McKinley’s fund will focus on “investing in Alaska’s most promising small- to medium-sized businesses, entrepreneurs, and emerging private equity and venture capital managers.”

Gillam also said McKinley would “package and develop” direct investment opportunities. Its fund is called the Alaska Private Investment Fund.

In an interview with Buyouts, Barings managing director Mina Pacheco Nazemi said the firm planned to focus on three major categories in Alaska: natural resources (including mining, oil and gas, and fisheries), transportation (including shipping, aviation, warehousing and logistics) and infrastructure (including ports, airports, telecommunications and power).

“The private equity and real assets industry is developing in Alaska, and there’s opportunity for growth there,” Nazemi told Buyouts. “It really is its own ecosystem and that’s why this is going to be quite a unique challenge and opportunity for us.”

Barings has dubbed its fund the Alaska Future Fund.

FY2019 returns

The $66 billion Alaska Permanent Fund’s private equity and special opportunities portfolio returns came in at 19.18 percent for fiscal year 2018-2019, well ahead of its 12.71 percent benchmark, according to a report by Callan presented to the Board of Trustees. As of June 30, the asset class made up 13 percent of the total fund. All private equity results were reported on a one-quarter lag.

Alaska’s Q2 2019 PE results came in just below its benchmark, at 4.27 percent versus 4.86 percent.

Alaska’s PE and special opportunities portfolio totals $8.8 billion: $4.97 billion, or 57 percent, is run by Pathway Capital Management; $272 million, or 3 percent, is run by BlackRock; and $3.55 billion, or 40 percent, is for special opportunities.

Pathway works as an investment consultant for the fund. Alaska staff told Buyouts the BlackRock investments are from 2014 commitments to two co-investment vehicles and the firm is not actively engaged in new investment activity for the fund. “Special opportunities” consist of fund commitments, co-investments, structured fund commitments and direct investments.

The largest strategy allocations are buyouts (47.18 percent), venture and growth capital (27.66 percent) and special situations (23.02 percent).

Technology was the largest industry exposure, making up 49.05 percent of the portfolio. Consumer discretionary was 13.14 percent and health care was 10.22 percent, the only other ones in double figures.

The total fund slightly under-performed its benchmark, returning 6.32 percent versus its 7.5 percent target.

New office location

Alaska is considering opening an additional office outside Juneau, Alaska’s capital, and the topic was discussed “briefly” by the Board of Trustees during a budget work session in early September, staff told Buyouts.

According to a presentation on Alaska Permanent’s website, the purpose of the new office would be to “enhance sourcing, due diligence, and recruiting.”

“A decision has not been made with regards to an additional office location, and this topic was not discussed by the Board of Trustees at the annual meeting,” Swanson wrote Buyouts.

Action Item: read the materials from Alaska Permanent’s Board of Trustees annual meeting here.