By Gregg Erickson
November 29, 2005
"The need for accountability and transparency will be paramount now that the Legislature has removed the caps on the types of investments," said Rep. Norman Rokeberg, R-Anchorage, prime sponsor of the bill that lifted the limits.
Burns says they needed the new freedom - and now need the right to keep some of their investments secret - so they can take advantage of "alternative investments," a term that covers ownership in companies that aren't listed on a stock exchange, undeveloped land, and outfits like hedge funds that specialize in high-risk speculation. Alternative investments have two things in common: They are largely unregulated and available only to high-roller investors.
Promoters of these ventures are all playing an angle. "It's more like investing in a strategy than in a traditional asset class like stocks or bonds," explains Burns. If the permanent fund is required to reveal the details of where the manager invested fund money, he fears they may be unwilling to do business with the fund.
Some public funds have adopted secrecy regulations like the one Burns has proposed, but those that have not seem to be doing just fine. California's public retirement fund continues to place money in alternative investments after a lawsuit seeking to open the records was settled in favor of disclosure.
In 1999 the Alaska Legislature gave permanent fund trustees limited authority to buy alternative investments. Experts say that adding a few of these far-out investments, if done right, can make the total fund both safer and more profitable. The key, of course, is doing it right.
Trustees have authorized up to $1.2 billion of fund investments in the alternative category. But in a discussion last month of proposed guidelines for these investments, trustees were told there are few limits.
Looking at a list of permissible investments, Trustee Steve Frank, a former banker, said he had only the vaguest idea of what some of them entail: "Global macro strategies?" he pondered, "What's that?"
Rick Shafer, the fund's chief investment officer, tried to explain: "In the case of the global macro, we're looking at someone who makes a macroeconomic judgment about the markets or about an economy, who puts an investment in place that reflects that view."
Frank seemed bemused and a little incredulous, "Any type of investment whatsoever?"
"It could literally be almost anything, currency, stocks, bonds, anything," responded Michael O'Leary, the permanent fund's long-time investment adviser. O'Leary also noted that under the proposed rules for alternative investments there is no limit on how much of a single company the fund could own.
"Increasing the fund's investment options would allow the trustees greater flexibility," APFC officials said in a background paper distributed to legislators in March. "This is especially important as the Legislature begins to contemplate the use of fund earnings for more than just the dividend program."
The officials didn't further explain, which left me wondering where the gas pipeline might fit in the fund's brave new "alternative" regime. I asked Shafer if the new rules would have to be changed to allow the fund to buy a billion-dollar stake in the gas pipeline.
"Not specifically, no," Shafer responded, provided the trustees had an expert report saying that the investment made sense. Which, of course, the fund might, according to Burns, keep secret.
The fund has earned the public's trust over 25 years in large part because of its "no secrets" policy. The current trustees, all but one appointed by Gov. Frank Murkowski, are poised to change that policy.
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