The Frozen Chosen
The huge wealth of sovereign funds has sparked lots of anxiety in Washington. But one similar outfit is 100% American and headquartered in Juneau, Alaska.
Since 1976, 25% of the state's mineral and oil revenue has gone into the Alaska Permanent Fund. Now worth $40 billion, its goal is twofold: to generate dividends for residents, and to build up funds for the day when the oil runs out. In recent years, a small amount has also gone to pay for capital projects around the state. This year, the 604,000 Alaskans each got $1,654. "For a place like Alaska, this is an extreme amount of money," says Michael J. Burns, chief executive of the Permanent Fund's management corporation.
Burns runs the outfit much like a public pension fund in the Lower 48. Early on, it primarily invested in Treasury bills and corporate debt, but managers have gradually embraced greater risk. That shift allowed the Alaskans to dive into venture capital and hedge funds, including a $40 million investment in Blackstone Capital Partners in 2005. Now, publicly traded stocks make up 53% of the fund, bonds 29%, real estate 10%, and alternative assets, such as hedge funds, 8%. Alaska's voters own, among other things, more than 7 million shares of General Electric (GE ), an apartment building on East 87th Street in Manhattan, and stakes in four dozen private equity funds. All the details are publicly disclosed.
Although oil production in Alaska is declining, the state contributed about $575 million in new petrodollars to the Permanent Fund this year. But that was dwarfed by the fund's $5.4 billion in investment returns. The hefty payoff is a sign that the fund—if not the state—is already weaning itself from oil. Burns points out that many sovereign funds around the globe face a common problem. "When you're in the extraction business," he says, "you know there's an end to what you can get from the earth."
By Eamon Javers