WEBVTT - Lessons From the One Sovereign Wealth Fund in the United States 0:00:02.480 --> 0:00:16.360 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:18.040 --> 0:00:21.600 Hello and welcome to another episode of the Odd Locks Podcast. 0:00:21.680 --> 0:00:24.080 I'm Joe Wisenthal and I'm Tracy Alloway. 0:00:24.320 --> 0:00:26.600 Tracy, we're back here in New York City, where it's 0:00:26.640 --> 0:00:30.640 warm and the sun sets at a normal hour of 0:00:30.680 --> 0:00:33.159 the day and I don't need to have blackout curtains. 0:00:33.200 --> 0:00:35.479 But I had a really good time on our recent 0:00:35.840 --> 0:00:36.839 voyage to Alaska. 0:00:36.880 --> 0:00:39.720 Alaska was great. I don't know why the overall state 0:00:39.800 --> 0:00:41.159 population has been declining. 0:00:41.240 --> 0:00:43.720 Yeah, it's great you moved there. 0:00:44.440 --> 0:00:47.080 There's nice weather, at least in the summer. In the summer, 0:00:47.240 --> 0:00:51.560 beautiful scenery, as much salmon as you can fishes out 0:00:51.560 --> 0:00:54.160 of the rivers. And every year you get paid some 0:00:54.200 --> 0:00:55.000 money by the state. 0:00:55.200 --> 0:00:58.320 Yeah, yeah, that's exactly right. No, there's a lot to 0:00:58.440 --> 0:01:00.960 like about it. I think it's first type of person. 0:01:01.240 --> 0:01:03.400 It certainly has a lot going for it. But it 0:01:03.440 --> 0:01:04.880 was really nice. You know, I didn't really know much 0:01:04.920 --> 0:01:07.360 about Alaska. I didn't have much fuel for its layout, 0:01:07.400 --> 0:01:09.560 it didn't might have much feel for its geography. I 0:01:09.640 --> 0:01:11.600 truly did feel like I was sort of at the 0:01:11.640 --> 0:01:15.400 far western edge of the Empire out there, very very distant. 0:01:15.640 --> 0:01:17.880 It has a very frontier feel. I mean, that's why 0:01:17.880 --> 0:01:19.399 they call it the last frontier. 0:01:19.080 --> 0:01:21.319 Extremely frontier field. And of course we talk to people 0:01:21.360 --> 0:01:23.399 in all kinds of industry there, et cetera. But as 0:01:23.440 --> 0:01:26.480 you mentioned, one thing that people know about Alaska, I mean, 0:01:26.520 --> 0:01:29.240 people know there's oil, and also people know that there 0:01:29.360 --> 0:01:32.880 is something that kind of resembles perhaps a sovereign wealth fund, 0:01:33.120 --> 0:01:35.720 and also that every citizen over I think the age 0:01:35.720 --> 0:01:38.280 of like eighteen months or whatever, ten months or something 0:01:38.360 --> 0:01:40.920 gets a check from the state, which sounds pretty nice. 0:01:40.959 --> 0:01:44.440 It sounds nice. It also sounds like a loaded political 0:01:44.440 --> 0:01:47.800 and financial hot potato, right, and I can imagine every 0:01:47.880 --> 0:01:50.520 year there is probably lots and lots of debate about 0:01:50.560 --> 0:01:52.760 exactly how much is going to be dispersed, what it 0:01:52.800 --> 0:01:55.280 means for the future of the fund, how it interacts 0:01:55.280 --> 0:01:58.760 with state and federal funding. Yeah, I'm excited to talk 0:01:58.800 --> 0:02:00.920 about all of that, but I think we should also 0:02:00.960 --> 0:02:04.480 add that this has new relevance right to the wider 0:02:05.000 --> 0:02:07.880 United States in America because there is talk about starting 0:02:07.960 --> 0:02:11.359 a US sovereign wealth fund, and there is also the 0:02:11.480 --> 0:02:14.480 payments for kids for infants from the Trump administration. 0:02:14.639 --> 0:02:17.320 That's right, that's right. Whether anything at the federal level 0:02:17.360 --> 0:02:19.880 that resembles a sovereign Well's fund or any sort of fund. 0:02:19.919 --> 0:02:23.600 What actually happened, who knows, But we have certain models 0:02:23.639 --> 0:02:25.520 of all this stuff, and it's worth learning a little 0:02:25.520 --> 0:02:27.640 bit more how they work. And I do think to 0:02:27.720 --> 0:02:31.560 sort of conclude our intellectual journey and our literal journey 0:02:31.560 --> 0:02:33.480 to Alaska, we sort of have to touch. 0:02:33.320 --> 0:02:33.880 On this element. 0:02:33.960 --> 0:02:34.960 Absolutely, let's do it. 0:02:35.000 --> 0:02:37.000 Okay, Well, I'm really excited to say we literally have 0:02:37.160 --> 0:02:40.760 the two perfect guests to talk about the Alaska Permanent 0:02:40.800 --> 0:02:42.280 Fund and what it is. We're going to be speaking 0:02:42.280 --> 0:02:44.919 with Marcus Frampton, he is the CIO of the Alaska 0:02:44.919 --> 0:02:49.080 Permanent Fund, and Devin Mitchell, CEO of the Alaska Permanent Fund. 0:02:49.160 --> 0:02:51.360 So Marcus and Devin, thank you so much both for 0:02:51.440 --> 0:02:53.040 coming on the Odd Lass Podcast. 0:02:53.440 --> 0:02:55.040 Yeah, thank you. We're happy to be here. 0:02:55.880 --> 0:02:58.880 Why don't we start with maybe one of you could 0:02:58.960 --> 0:03:01.639 just give us the very clicked like what is the 0:03:01.680 --> 0:03:04.600 size of the fund and how, when and why was 0:03:04.639 --> 0:03:05.200 it started? 0:03:06.360 --> 0:03:10.120 So this is Devin Mitchell and I'll take that question. 0:03:10.800 --> 0:03:12.679 When you think about Alaska, and you guys have a 0:03:13.080 --> 0:03:16.200 just a small sample of Alaska, of course, when you 0:03:16.240 --> 0:03:18.919 think about it. You went to the largest city in Alaska, 0:03:18.960 --> 0:03:22.320 but if you superimposed Alaska over the continental US, you 0:03:22.360 --> 0:03:25.880 would have each of the coasts touched by Alaska, as 0:03:25.880 --> 0:03:28.359 well as the southern and northern borders. 0:03:28.800 --> 0:03:29.760 So it's a huge state. 0:03:29.840 --> 0:03:33.080 Let's say you went to Nebraska, so you didn't really 0:03:33.400 --> 0:03:36.320 experience all that Alaska has to offer, but certainly it 0:03:36.320 --> 0:03:39.160 sounds like you got a good sample. The state's a 0:03:39.240 --> 0:03:42.320 young state. We became a state in nineteen fifty nine, 0:03:42.680 --> 0:03:44.920 and when Alaska became a state, there was a lot 0:03:44.920 --> 0:03:47.960 of concern about the ability of Alaska to support itself 0:03:48.040 --> 0:03:52.600 economically because of a relatively small population, remote location, lack 0:03:52.600 --> 0:03:55.720 of understanding about the state. And so the state was 0:03:55.760 --> 0:03:59.520 created as a resource state, meaning that the state retained 0:03:59.560 --> 0:04:02.880 the right the sub service mineral rights of the land 0:04:02.920 --> 0:04:07.040 in Alaska that it selected at statehood. And so in 0:04:07.160 --> 0:04:11.440 nineteen sixty eight, Prudo Bay was discovered, the largest oil 0:04:11.480 --> 0:04:15.440 field in North America, and the next year, in nineteen 0:04:15.520 --> 0:04:18.000 sixty nine, there was a lease sale that generated nine 0:04:18.080 --> 0:04:20.640 hundred million dollars of revenue. 0:04:20.200 --> 0:04:20.760 For the state. 0:04:20.880 --> 0:04:22.680 And this is at a time when the state's budget 0:04:22.680 --> 0:04:24.760 was one hundred and fifty million dollars and so an 0:04:24.800 --> 0:04:27.880 incredible amount of money for the day for this state. 0:04:28.040 --> 0:04:30.880 People thought it was so much money they couldn't possibly 0:04:30.960 --> 0:04:34.440 spend it all. It initiated a process that resulted in 0:04:34.440 --> 0:04:38.600 the Trans Alaska Pipeline being constructed, but by the mid 0:04:38.720 --> 0:04:43.080 nineteen seventies, that money was clearly going to be finally 0:04:43.120 --> 0:04:47.279 expended before the Trans Alaska Pipeline was completed, and that 0:04:47.400 --> 0:04:50.320 set the stage for people to recognize that oil was 0:04:50.320 --> 0:04:54.839 a one time, finite resource and a revenue generator, and 0:04:55.240 --> 0:04:59.039 there were forward thinking people of that generation that were 0:04:59.040 --> 0:05:01.360 willing to set aside I had a portion of their 0:05:01.440 --> 0:05:05.760 current year revenue for the benefit of future generations of Alaskans, 0:05:06.080 --> 0:05:11.039 and that culminated with a constitutional amendment in nineteen seventy 0:05:11.080 --> 0:05:16.080 six that dedicated twenty five percent of royalty revenues to 0:05:16.120 --> 0:05:20.560 the State of Alaska. It required that that revenue, once saved, 0:05:20.640 --> 0:05:24.640 be invested, and it required that the earnings of the 0:05:24.760 --> 0:05:29.200 fund be made available to the state. And so we've 0:05:29.960 --> 0:05:34.760 subsequently initiated the Permanent Fund Dividend program to allow residents 0:05:34.760 --> 0:05:37.520 to have a stake in the program, and it's evolved 0:05:37.520 --> 0:05:40.320 today to where it's our largest single revenue source at 0:05:40.680 --> 0:05:43.240 approximately sixty percent of the state's revenue. 0:05:43.720 --> 0:05:46.800 Yeah, that's a that's a hefty chunk. Marcus, Why don't 0:05:46.800 --> 0:05:50.560 you give us from the sort of portfolios downpoint talk 0:05:50.640 --> 0:05:53.880 to us about how the fund has evolved over time. 0:05:53.920 --> 0:05:56.360 So nineteen seventy six, you know, it gets set up. 0:05:56.600 --> 0:05:59.000 What do the initial investments look like, and what do 0:05:59.040 --> 0:05:59.839 they look like today? 0:06:00.920 --> 0:06:01.200 Yeah? 0:06:01.240 --> 0:06:04.440 Sure, So this is Marcus Frampton. I'm the chief investment officer. 0:06:04.960 --> 0:06:07.240 Initially when the fund was set up, we were in 0:06:07.279 --> 0:06:09.480 a very high interest rate environment. At the end of 0:06:09.520 --> 0:06:12.440 the seventies, equities had kind of fallen out of favor, 0:06:12.600 --> 0:06:14.840 and so it was very much a fixed income fund 0:06:15.440 --> 0:06:18.919 up until the mid nineteen eighties. Real estate was introduced 0:06:18.920 --> 0:06:22.240 at that point as the second asset class. In the 0:06:22.279 --> 0:06:25.479 early nineties, first domestic stocks and then later in the 0:06:25.480 --> 0:06:29.880 mid nineties, international stocks were added. In the early two thousands, 0:06:30.000 --> 0:06:33.600 we added hedge funds and private credit and private equity 0:06:34.200 --> 0:06:38.839 and have grown those alternative asset classes. Like many of 0:06:38.880 --> 0:06:42.680 our peers, the university endowments and pensions have grown, so 0:06:42.720 --> 0:06:46.400 today the fund itself is around eighty five billion dollars. 0:06:46.880 --> 0:06:51.120 Our largest asset classes is public equities. That money's managed 0:06:51.200 --> 0:06:54.520 against the all country world index, so very global index. 0:06:55.080 --> 0:06:59.039 We'd trade bonds internally high yield through investment grade, and 0:06:59.080 --> 0:07:01.760 then have alternative and privates that are kind of forty 0:07:01.839 --> 0:07:06.000 percent of the fund today. So our asset allocation is 0:07:06.040 --> 0:07:10.480 not unlike you know, many university endowments or pension funds today. 0:07:10.640 --> 0:07:14.640 And we manage to an inflation plus five percent return 0:07:15.320 --> 0:07:19.440 with the aim of dispersing roughly five percent of the 0:07:19.440 --> 0:07:22.720 fund to the state both for state spending and the 0:07:22.760 --> 0:07:27.240 dividend program, and then having the remainder maintain its value 0:07:27.240 --> 0:07:27.840 with inflation. 0:07:28.040 --> 0:07:30.360 Is why we target that inflation plus five. 0:07:31.560 --> 0:07:35.040 I'm curious. You know, markets are markets, and sometimes as 0:07:35.240 --> 0:07:39.760 valuations go down any year, what happens then for either 0:07:39.800 --> 0:07:43.119 the fund or Alaska when there's a bad year. Maybe 0:07:43.120 --> 0:07:45.760 it's like twenty twenty two and stocks have a pretty 0:07:45.840 --> 0:07:47.679 rough year, or two thousand and eight and two thousand 0:07:47.720 --> 0:07:50.160 and nine and stocks have a rough year. What happens 0:07:50.400 --> 0:07:55.280 when you can't satisfy the demand for state revenue or 0:07:55.640 --> 0:07:58.560 you know, I guess partly those dividends. What happens both 0:07:58.600 --> 0:08:00.480 with the fund in terms of how and how this 0:08:00.520 --> 0:08:01.360 state budget works. 0:08:02.400 --> 0:08:04.600 Yeah, well, at a high level, we've got a very 0:08:04.640 --> 0:08:08.720 complicated system with the constantually protected principle and then an 0:08:08.720 --> 0:08:13.440 earnings reserve that accumulates realized earnings. And so at the 0:08:13.520 --> 0:08:17.000 investment level, we're rebalancing, we're buying stocks and doing all 0:08:17.040 --> 0:08:18.880 the things all investors do. But I'll hand it to 0:08:18.920 --> 0:08:21.840 Devin on how we think about the pressure on the 0:08:21.880 --> 0:08:23.520 earnings reserve in those situations. 0:08:24.440 --> 0:08:29.160 Sure, So, as I said earlier, the Constitution was pretty 0:08:29.160 --> 0:08:31.400 broad in how it established the fund, and then there's 0:08:31.440 --> 0:08:34.760 a statutory overlay on top of that, and the statutory 0:08:34.880 --> 0:08:40.240 overlay defines earnings or revenue that's available to appropriate as 0:08:40.440 --> 0:08:45.920 realized income. And so when we have unrealized income, we 0:08:46.040 --> 0:08:49.319 hold it in either principle or what we call the 0:08:49.360 --> 0:08:53.800 earnings reserve account. That's where we hold the realized earnings 0:08:53.800 --> 0:08:58.040 of the fund and a pro rata allocation of unrealized earnings. 0:08:58.520 --> 0:09:01.120 So when you break down that eighty five billion that 0:09:01.240 --> 0:09:04.959 Marcus referred to earlier, you have about fifty nine billion 0:09:05.000 --> 0:09:09.040 that's actually protected principle of the permanent Fund. Then you 0:09:09.200 --> 0:09:15.000 have about thirteen billion of unrealized gains allocated to principle, 0:09:15.280 --> 0:09:17.360 and then you have the earnings Reserve Account, which is 0:09:17.400 --> 0:09:20.480 the portion that the legislature can appropriate out of it 0:09:20.559 --> 0:09:24.800 has about six point four billion that's available for appropriation 0:09:25.000 --> 0:09:27.240 at this point, has about two point three billion of 0:09:27.320 --> 0:09:32.640 unrealized gains that are allocated towards it, and then that combined. 0:09:32.200 --> 0:09:33.840 Is around nine billion dollars. 0:09:34.080 --> 0:09:36.240 And then we have the current years POMB and our 0:09:36.280 --> 0:09:39.679 POMV structure has only been in place since twenty nineteen. 0:09:40.080 --> 0:09:44.119 It's a historical five year average five percent draw structure 0:09:44.640 --> 0:09:47.320 and has, like I said, been providing the majority of 0:09:47.320 --> 0:09:50.200 state revenue since. But prior to that, the only thing 0:09:50.240 --> 0:09:53.720 funded out of the permanent fund were Permanent Fund dividends. 0:09:53.760 --> 0:09:56.520 So that was a big shift timeframe that we've gone 0:09:56.559 --> 0:09:59.560 through in the last six or seven years. As far 0:09:59.600 --> 0:10:03.559 as what we would do in a negative earnings year, 0:10:03.640 --> 0:10:07.560 if we had unrealized losses, it would just diminish that 0:10:08.160 --> 0:10:10.800 war chest of unrealized gains we currently have. 0:10:11.360 --> 0:10:12.199 If it were to. 0:10:12.400 --> 0:10:16.720 Erode beyond that level, then you would be in a 0:10:16.760 --> 0:10:21.400 situation at some point where the earnings Reserve Account would 0:10:21.440 --> 0:10:25.040 be deficient and there wouldn't be an ability to provide 0:10:25.160 --> 0:10:28.040 for a transfer to the state of Alaska, and that 0:10:28.200 --> 0:10:31.000 in part is why we've been advocating at the fund, 0:10:31.520 --> 0:10:37.640 based on our trustees direction, to evolve the fund from 0:10:37.679 --> 0:10:41.760 this historical model created fifty years ago to something that's 0:10:41.800 --> 0:10:44.280 a little more modern and a little more in line 0:10:44.320 --> 0:10:49.080 with a true endowment or sovereign wealth fund and recognize 0:10:49.120 --> 0:10:52.200 the importance to the state's annual revenue stream that it 0:10:52.240 --> 0:10:53.280 now represents. 0:10:53.840 --> 0:10:57.360 So in a year like twenty twenty five, if Joe 0:10:57.440 --> 0:11:00.160 and I were flies in the room when you were 0:11:00.200 --> 0:11:03.680 maybe actually mosquitos in the room, given that it's Alaska, 0:11:04.120 --> 0:11:05.640 if we were in the room when you were making 0:11:05.640 --> 0:11:09.240 the decision about what this year's dividend payout is actually 0:11:09.240 --> 0:11:12.720 going to be, what would the conversations actually sound like. 0:11:12.800 --> 0:11:16.560 What are the considerations that you were thinking about as 0:11:16.559 --> 0:11:17.680 you announce this number. 0:11:18.480 --> 0:11:20.880 So, first of all, we're not those flies. 0:11:21.080 --> 0:11:24.120 We don't decide how big the permanent fund dividend is 0:11:24.160 --> 0:11:27.160 going to be. We just earn and provide the annual 0:11:27.200 --> 0:11:32.680 transfer to the state. The policymakers that decide how much 0:11:32.760 --> 0:11:35.000 the dividend is going to be, or the legislature and 0:11:35.040 --> 0:11:38.640 the governor. So in twenty nineteen, when they created the 0:11:38.800 --> 0:11:41.280 percent of market value statutory structure. 0:11:41.320 --> 0:11:42.040 They left in. 0:11:42.040 --> 0:11:47.400 Place the historic, the historical or legacy Permanent Fund Dividend statute, 0:11:47.480 --> 0:11:51.200 which was in earnings model. It was twenty one percent 0:11:51.280 --> 0:11:54.439 of the last five completed fiscal years earnings. You take that, 0:11:54.520 --> 0:11:57.640 you split it in half. Half goes to the Permanent 0:11:57.640 --> 0:12:00.840 Fund dividend. Half goes theoretically of the state, although the 0:12:00.840 --> 0:12:03.800 state always just put their half back into the fund, 0:12:04.280 --> 0:12:07.160 and so our governor has proposed each year of his 0:12:07.240 --> 0:12:12.600 administration that that formula be followed for purposes of establishing 0:12:12.679 --> 0:12:16.400 the permanent Fund dividend. The difficulty has been that oil 0:12:16.480 --> 0:12:19.959 revenues have diminished for the State of Alaska. They're no 0:12:20.000 --> 0:12:24.920 longer robust enough to provide for the services that residents expect, 0:12:25.080 --> 0:12:27.640 and so the legislature has gone through a process of 0:12:27.679 --> 0:12:32.720 determining how much can they provide for a permanent fund 0:12:32.760 --> 0:12:35.360 dividend at the same time they provide some level of 0:12:35.400 --> 0:12:38.640 services that the residents expect, and as you might be 0:12:38.679 --> 0:12:41.920 able to predict, during an election year, miraculously they find 0:12:41.960 --> 0:12:44.800 ways to have a little bit larger permanent fund and 0:12:44.880 --> 0:12:47.559 during non election years maybe they're a little more austere. 0:12:47.679 --> 0:12:50.400 But it's been a struggle in a more of a 0:12:50.520 --> 0:12:52.680 debate these last six years. 0:12:52.920 --> 0:12:55.240 Yeah, Aly, can you talk about that a little bit 0:12:55.280 --> 0:12:57.840 more from your perspective of thinking about the long term 0:12:57.880 --> 0:13:00.000 health of the State of Alaska, the long term health 0:13:00.040 --> 0:13:03.520 of the fund and so forth, How can either political 0:13:03.760 --> 0:13:07.120 elected leaders or people such as yourself whose job is 0:13:07.120 --> 0:13:09.240 to safeguard the fund for the long term, for the 0:13:09.280 --> 0:13:12.960 benefit of the state of Alaska, you know, avoid essentially 0:13:13.520 --> 0:13:15.960 people eating the seed corn, right, because that's what we're 0:13:15.960 --> 0:13:19.319 talking about. Right of course, in an election year, everyone 0:13:19.720 --> 0:13:22.760 Democrat or Republican is going to be about protecting or 0:13:22.800 --> 0:13:25.840 expanding the dividend, regardless of the performance, regardless of how 0:13:25.880 --> 0:13:29.120 big oil royalties are. How do you sort of keep 0:13:29.240 --> 0:13:31.240 you know, I think there's versions of this debate that 0:13:31.240 --> 0:13:34.440 happened in DC. What is the discussions like to keep 0:13:34.480 --> 0:13:40.160 those choices essentially fiscally responsible for the long term. 0:13:40.320 --> 0:13:45.280 I think the discipline that's required in any financial system 0:13:45.520 --> 0:13:48.880 is something that we circle around to continually that in 0:13:48.960 --> 0:13:54.200 the event that you exceed what we've determined to the 0:13:54.240 --> 0:13:57.400 best degree possible as a reasonable draw. The five percent 0:13:57.559 --> 0:14:00.960 historical draw is a reasonable draw if you want to 0:14:01.040 --> 0:14:03.400 ensure that you have an inflation proof fund into the 0:14:03.440 --> 0:14:07.360 future that to the extent you deviate from that, because 0:14:07.400 --> 0:14:10.720 there's available money in the stats, in the earnings reserve account. 0:14:11.120 --> 0:14:12.880 That's just the first time that. 0:14:12.840 --> 0:14:15.360 You're going to overspend, and next year there's going to 0:14:15.400 --> 0:14:18.600 be another reason that you overspend, and you're almost ensuring 0:14:18.679 --> 0:14:22.600 that the system's going to fail. And I circle around 0:14:22.600 --> 0:14:26.360 to why does this money even exist. It exists because 0:14:26.760 --> 0:14:31.120 there were fifty generations of Alaskans before this generation that 0:14:31.240 --> 0:14:33.880 didn't spend all of the current year revenue that came in. 0:14:34.000 --> 0:14:36.600 They put some of that revenue aside, and they didn't 0:14:36.640 --> 0:14:39.880 do that for the benefit of any individual that was 0:14:39.920 --> 0:14:41.800 going to live in the state of Alaska in twenty 0:14:41.880 --> 0:14:44.480 twenty five or twenty twenty six. They did it for 0:14:44.600 --> 0:14:47.240 the state of Alaska so the state of Alaska would 0:14:47.240 --> 0:14:50.240 have the resources to survive into the future. And so 0:14:50.360 --> 0:14:54.000 that sacrifice of the past generations of Alaskans to ensure 0:14:54.000 --> 0:14:57.760 that we have this incredible resource and revenue source for 0:14:57.840 --> 0:15:02.680 the state to provide for not just services. Remember we're 0:15:02.720 --> 0:15:06.920 not just arguing about school funding and public safety and 0:15:07.080 --> 0:15:10.040 roads and the normal things. We're arguing about how much 0:15:10.080 --> 0:15:14.640 money to give away that to our residents. That's such 0:15:14.680 --> 0:15:17.760 an incredible gift that the past generations have given to 0:15:17.840 --> 0:15:21.760 this generation, and that same gift needs to be enshrined 0:15:21.840 --> 0:15:23.160 for the future of the state. 0:15:39.000 --> 0:15:42.800 Marcus, How does declining oil revenue or just the cyclicality 0:15:42.880 --> 0:15:46.640 of the oil business feed into your actual investment decisions? 0:15:46.680 --> 0:15:49.400 You know, if the price of crude goes down, is 0:15:49.440 --> 0:15:52.840 that a year where maybe you invest in risky, er, 0:15:53.040 --> 0:15:55.920 higher yielding things. Do you calibrate it in that way? 0:15:57.200 --> 0:15:57.680 Yeah? Sure. 0:15:57.720 --> 0:16:02.280 So today the royalty income for the fund is less 0:16:02.280 --> 0:16:05.000 than a billion a year, and we're dispersing over three 0:16:05.080 --> 0:16:07.840 billion a year to the state through the five percent 0:16:07.920 --> 0:16:12.320 draw So movements in oil do impact our inflows, but 0:16:12.560 --> 0:16:15.320 very marginally relative to the size of the fund. And 0:16:16.040 --> 0:16:18.600 there have been arguments at times whether we should invest 0:16:18.640 --> 0:16:21.680 in oil and gas given the state's exposure, and we've 0:16:21.760 --> 0:16:24.200 ended up deciding that we do want exposure to oil 0:16:24.200 --> 0:16:27.400 and gas investments, and so in periods like twenty twenty 0:16:27.440 --> 0:16:30.560 and twenty twenty one have leaned into energy, private equity 0:16:30.960 --> 0:16:33.560 and things like that. So we like investing in energy, 0:16:33.640 --> 0:16:37.640 but it doesn't have an outsized impact on the cash 0:16:37.680 --> 0:16:38.600 flows of the fund. 0:16:38.800 --> 0:16:40.200 Given the size of the royalties. 0:16:40.280 --> 0:16:42.200 I'm actually really intrigued by that. Can you talk more 0:16:42.240 --> 0:16:44.400 about that, because I remember sometimes you hear about these 0:16:44.480 --> 0:16:49.320 questions should people in finance have exposure to fund banks 0:16:49.400 --> 0:16:51.480 right in their portfolio? There's a good reason to say no, 0:16:51.640 --> 0:16:54.800 because their career is going to be levered to the 0:16:54.840 --> 0:16:57.920 cycle of the financial cycle, and if they get laid off, 0:16:57.920 --> 0:16:59.560 it's probably going to be at a time when bank 0:16:59.560 --> 0:17:02.400 stocks low and so forth. So that's actually a very 0:17:02.400 --> 0:17:04.639 interesting dimension. Can you talk a little bit more about 0:17:04.880 --> 0:17:07.639 the reasoning for this sort of in a way double 0:17:07.720 --> 0:17:10.520 exposure to energy that the fund has. 0:17:10.880 --> 0:17:13.800 Yeah, I mean, we feel like energy is an attractive area, 0:17:13.920 --> 0:17:17.240 so many investors don't want to be in fossil fuels 0:17:17.280 --> 0:17:20.719 that even today, I mean in twenty twenty one, there 0:17:20.760 --> 0:17:24.640 was a clear scarcity of capital and there were comments 0:17:24.640 --> 0:17:27.679 being made that people weren't me using fossil fuels in 0:17:27.720 --> 0:17:31.119 ten years, which like clearly in our opinion, contradicted the data. 0:17:31.280 --> 0:17:35.240 So we just liked it from an opportunistic standpoint. 0:17:35.640 --> 0:17:38.160 I mean, I think that it's a small enough portion 0:17:38.280 --> 0:17:41.000 of the S and P five hundred and our private 0:17:41.000 --> 0:17:44.920 equity benchmark that you know, if the index is at 0:17:45.200 --> 0:17:46.879 four percent and we're at five. 0:17:47.000 --> 0:17:48.760 It's it's not like an outsized impact. 0:17:48.800 --> 0:17:51.399 I mean, you see tech people that work at Google 0:17:51.440 --> 0:17:54.919 and their whole portfolios and tech and I would advise 0:17:54.960 --> 0:17:58.280 against that, but I think our sizing is reasonable. 0:17:58.200 --> 0:18:00.879 And we like the outlook for Weill and gas, so 0:18:00.960 --> 0:18:01.800 we're active there. 0:18:02.640 --> 0:18:04.800 Just to give you an idea of the magnitude of 0:18:04.840 --> 0:18:07.639 the royalties that are coming to the fund at this point, 0:18:07.840 --> 0:18:10.600 the high and the low over the last ten years 0:18:10.640 --> 0:18:14.000 are only two hundred million dollars apart, three hundred fifteen 0:18:14.119 --> 0:18:17.440 ish for the low and five forty ish for the high, 0:18:17.760 --> 0:18:21.840 and so in comparison to revenues and investments of the fund, 0:18:21.880 --> 0:18:24.160 fairly inconsequential. 0:18:24.400 --> 0:18:27.760 Other than generating a return and being able to fund 0:18:27.800 --> 0:18:30.760 the state and pay out a nice bonus to citizens, 0:18:30.800 --> 0:18:33.399 which you know in itself are two big things to 0:18:33.400 --> 0:18:36.560 be doing. Are there any other goals that you have 0:18:36.640 --> 0:18:39.080 in terms of investment. Are you trying to build out 0:18:39.119 --> 0:18:42.680 more infrastructure in Alaska? Are you conscious of the specific 0:18:42.920 --> 0:18:44.240 projects that you're funding. 0:18:45.160 --> 0:18:48.560 We invest entirely with a financial lens, and that was 0:18:49.280 --> 0:18:51.720 with the exception of one. There's one state law that 0:18:51.800 --> 0:18:55.159 says if we're in our rags that say that if 0:18:55.200 --> 0:18:58.680 there's an investment of equivalent risk and return, we should 0:18:58.680 --> 0:19:03.000 prefer the Alaskan investment. And it's very difficult to measure that. Like, 0:19:03.040 --> 0:19:04.800 if you look at the stock market, I think there's 0:19:05.280 --> 0:19:09.040 one stock Northern Bank that's an Alaskan based stock on 0:19:09.119 --> 0:19:12.960 an exchange. So a strict interpretation would be that we 0:19:12.960 --> 0:19:16.440 have to like compare Northern Bank to every community bank. 0:19:16.800 --> 0:19:18.200 And I like Northern. 0:19:17.800 --> 0:19:19.960 Bank, and like we own stock at Northern Bank, but 0:19:20.119 --> 0:19:21.639 there's a limit to how much you can have in 0:19:21.640 --> 0:19:24.399 a three hundred million market cap community bank. 0:19:24.800 --> 0:19:27.080 And so pretty well, I just pulled up the church. 0:19:27.119 --> 0:19:29.960 It's a pretty success. Just a small little bank, but 0:19:30.000 --> 0:19:32.199 it looks like this. It's a nice yeah, and I have. 0:19:32.200 --> 0:19:34.840 An account there. I like Northern Bank. But so none 0:19:34.880 --> 0:19:37.000 of this is meant to denigrate Northern Bank. We love 0:19:37.240 --> 0:19:37.840 Northern Bank. 0:19:37.920 --> 0:19:43.400 But so when there are opportunities in Alaska, we will 0:19:43.440 --> 0:19:46.119 take a look, probably more frequently than we would if 0:19:46.160 --> 0:19:48.840 it's a random opportunity in another state. But our mandate 0:19:48.920 --> 0:19:52.600 is very much highest and best return financially, and some 0:19:52.680 --> 0:19:55.320 of our private equity managers have done deals in the state, 0:19:55.400 --> 0:19:58.920 and we have some minor investment activity in the state, 0:19:58.960 --> 0:20:02.000 but that's the overall look that we take. 0:20:03.000 --> 0:20:06.320 And again it goes back to the development fund model 0:20:06.480 --> 0:20:09.760 versus a public trust model, and that was the debate 0:20:09.800 --> 0:20:13.119 that happened in the nineteen seventies, from seventy six to 0:20:13.200 --> 0:20:17.480 nineteen eighty, and the public trust model one, rather than 0:20:17.680 --> 0:20:20.600 we're going to try to invest this money in Alaska 0:20:20.640 --> 0:20:25.399 and develop Alaska. Alberta Heritage Fund is actually a good 0:20:25.880 --> 0:20:29.000 proxy for how you might expect a fund to have 0:20:29.240 --> 0:20:33.239 performed if it were a development model. And when you 0:20:33.320 --> 0:20:37.760 compare the performance of their fund relative to ours, it 0:20:37.920 --> 0:20:42.520 certainly financially has worked out to Alaska's benefit to have 0:20:42.640 --> 0:20:45.560 the public trust and just looking for the best investment, 0:20:45.560 --> 0:20:46.640 as Marcus described. 0:20:47.400 --> 0:20:50.439 Marcus, while we have you here, can you tell us 0:20:50.440 --> 0:20:52.800 a little bit about your sense of the state of 0:20:52.840 --> 0:20:56.320 private assets because two things. A, you always hear it's 0:20:56.359 --> 0:20:58.359 the golden age of private credit. I don't really know 0:20:58.400 --> 0:21:00.280 what that means. Are you just hear about private all 0:21:00.280 --> 0:21:03.359 the time, But also with private assets in general, you 0:21:03.359 --> 0:21:05.800 hear it particularly on the private equity side, and maybe 0:21:05.880 --> 0:21:08.160 you hear it on the VC side too. The sort 0:21:08.200 --> 0:21:11.320 of paucity of distributions and so forth, and this idea 0:21:11.359 --> 0:21:14.040 that they haven't been coming in questions about returns. Like 0:21:14.400 --> 0:21:17.960 you sitting here on August thirteenth, twenty twenty five, how 0:21:17.960 --> 0:21:21.359 are you thinking about the past results but also opportunities 0:21:21.359 --> 0:21:23.480 set right now that exists in private. 0:21:24.080 --> 0:21:27.480 Yeah, sure, I would say generally, I'm quite cautious on privates. 0:21:27.520 --> 0:21:29.919 I mean, I started my career at Lehman Brothers in 0:21:30.240 --> 0:21:34.840 one and I remember going through LBO training and you know, 0:21:34.880 --> 0:21:37.720 you sketch out your typical LBOs maybe five six times 0:21:37.720 --> 0:21:41.320 EBITDA with three four times leverage, and the debt pays 0:21:41.359 --> 0:21:44.840