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Lesson 1 – How did Alaska GET a Permanent
Fund?
Lesson 2 – What IS the Permanent Fund?
Lesson 3 – What is the Permanent Fund FOR?
Three important questions about our Permanent Fund
1968 – Atlantic Richfield strikes oil in Prudhoe Bay. Recoverable oil reserves estimated at 9.6 BILLION barrels.
1957 – 1968…exploratory drilling Alaska.
1968: Bonanza!
What does a 10 year old state do with $900 million?
The state leaders held meetings around Alaska to talk about it.
Here were some of the ideas that people proposed:
• Basic “Infrastructure” • Loan program • Longevity bonus program • A “perpetual and permanent capital fund for the continuing development of Alaska”
The Legislature spent money on many new The Legislature spent money on many new projects and programs such as the Student Loan projects and programs such as the Student Loan Program, the Longevity Bonus Program and Program, the Longevity Bonus Program and infrastructure projects.infrastructure projects.
1969 – 1975: How Alaska used its budget 1969 – 1975: How Alaska used its budget surplussurplus
1968-1976…getting the oil to market: building the Alaska Pipeline
1968 – 1971 Progress stalls as oil companies wait 1968 – 1971 Progress stalls as oil companies wait for land claims with Alaska Native people to be for land claims with Alaska Native people to be resolved before developing oil fields.resolved before developing oil fields.
1971 – President Nixon signs Alaska Native Claims 1971 – President Nixon signs Alaska Native Claims Settlement Act (ANCSA)Settlement Act (ANCSA)
1973 – Congress passes TransAlaska Pipeline 1973 – Congress passes TransAlaska Pipeline AuthorizationAuthorization ActAct
1974 – 19761974 – 1976 Pipeline constructionPipeline construction
A second windfall was coming… What would Alaska do this time?19761976 Alaska voters approve a constitutional Alaska voters approve a constitutional
amendmentamendmentestablishing the Permanent Fundestablishing the Permanent Fund
19771977 Permanent Fund receives its first deposit Permanent Fund receives its first deposit ofof
constitutionally dedicated oil revenues; constitutionally dedicated oil revenues; $734,000$734,000
Representative Hugh Malone
Governor Jay Hammond and the Legislature
1977 - 1980 Alaskans debate: Alaskans debate: “ “How should Fund earnings be How should Fund earnings be used?”used?”
Leases were signed ANCSA was settled Companies were drilling for oil Pipeline was finished Permanent Fund was created Money was flowing into the Fund Investments were generating income
What should Alaska do with the income?
Why we have a Permanent Fund…
$0
$1
$2
$3
$4
$5
$6
1976
1984
1992
2000
2008
2016
2024
Bil
lio
ns
State General Fund mineral revenues
Fund investment earnings that may be spent
1980: Legislature creates the Alaska 1980: Legislature creates the Alaska Permanent Fund Corporation to manage Permanent Fund Corporation to manage the Fundthe Fund
APFC Board of Trustees
Finance group
Juneau office building
Investment group
Investing: trying to manage risk…Inflation
Principal
Interest rates
Liquidity
Credit
Markets
Corporate governance
The economy
Price of oil
Politics/elections
Investment
management
Natural disasters
?
A diverse asset allocation = risk management
***
* Private equities are stocks that are not traded on the public stock exchanges, such as the New York Stock Exchange
** Absolute return investments is another name for hedge funds, which involves a wide variety of investment strategies.
The effect of diversifying your assets (investments)
*A “return” means the profit on an investment, usually expressed as an annual percentage rate.
Annual inflation rates since the Fund’s early days
0%
2%
4%
6%
8%
10%
12%
14%
16%
78 80 82 84 86 88 90 92 94 96 98 0 2 4 6
Inflation rate*
* based on US Consumer Price Index
How inflation affects the Permanent Fund: total return – inflation = real return
* based on US Consumer Price Index