Permanent Fund reveals its in-state investments, including a grocery store chain
March 1, 2023
A multimillion-dollar share of the Alaska grocery store chain Three Bears is one of the latest additions to the Alaska Permanent Fund Corp.’s $200 million in-state investment program — a small slice of the $76 billion state savings account.
The program, ordered by the board in 2018, has almost finished making its investments. The corporation’s board of trustees received an update on the program at a quarterly meeting this month.
In addition to Three Bears, the new in-state investments include millions spent on a company that operates aviation services at Ted Stevens Anchorage International Airport, Anchorage-based All Alaska Tours, a seaweed-product company called Macrooceans, an electric cargo-ship company called Fleetzero, and a firm seeking to convert natural gas into hydrogen.
The in-state program is handled by money managers that place private-equity investments for the Permanent Fund. It’s relatively uncharted territory for the fund and its managers. The corporation, which manages the fund, had mostly avoided investments within Alaska for most of its life.
Normally, private equity investments — companies not publicly traded on a stock exchange — are closely guarded secrets, but the Permanent Fund has been more open about its in-state investments.
The Three Bears investment was directed by Barings, a multibillion-dollar global investment firm charged with managing half of the fund’s in-state investment program — under the name Alaska Future Fund. Barings’ investment was publicized last year, but the Permanent Fund’s involvement was not disclosed.
James Cartales, managing director of Cascadia Capital in Seattle, helped coordinate the investment. He said he can’t disclose the exact figure but called the Barings-directed Alaska Future Fund a “strategic, minority investor in the Three Bears business” and characterized it as “a multimillion-dollar investment.”
Since the investment, the grocery store chain has been expanding statewide, developing new stores in North Pole, Saxman, Eagle River, Cooper Landing, and possibly Ester, west of Fairbanks.
“This allows us the financial backing to open more stores quicker and be able to spread out faster,” marketing director Jim Kolb told KUAC-FM in January.
Anchorage-based McKinley Capital Management manages the other half of the in-state investments, under the name Na’ Nuk Fund.
Steven J. Center, senior vice president and investment consultant for Callan, the Permanent Fund Corp.’s leading outside adviser, told members of the House Finance Committee last week that it takes about three years to judge the success of private equity investments like those the Permanent Fund is making in Alaska.
“The in-state investment program is still in its infancy for all intents and purposes,” he said. “It is too early to tell how well they are doing,” Center told lawmakers.
While it’s impossible to judge absolute returns so far, the in-state investments are performing poorly when compared to out-of-state private equity investments made by the Permanent Fund Corp. during the same period.
A staff assessment noted that the Alaska Future Fund “ranks in the bottom quartile of vintage year 2019 investments in APFC’s private equity portfolio,” while the Na’ Nuk Fund “ranks in the bottom quartile of vintage year 2020 investments” in the same portfolio.
APFC Chief Investment Officer Marcus Frampton, said last week that if he had another dollar to spend on a private equity investment, “I probably wouldn’t pick (the in-state program) for the next incremental dollar.”
Following that assessment, several APFC board members expressed concern about that performance and said they would not support spending additional money on the in-state program.
“I’m worried about this program, because we’re trying to be the best money managers we can,” said board member Steve Rieger.
Jason Brune, a board member and commissioner of the Alaska Department of Environmental Conservation, said he’s also “nervous” about the potential “politicization of our investments.”
“I’ve lived it,” he said. “There are projects that I am permitting, that I know are using the name of the Permanent Fund to hype up their projects, saying that the Permanent Fund is investing in them. That’s scary.”
The trustees at their February meeting failed to pass a motion to consider limiting future in-state investments at the board’s upcoming May meeting.
“The returns are not terrible. They’re not great,” said board member Craig Richards, who voted against the motion. “They’re probably about where I would have expected. … But the question isn’t just how they performed. The question is, what can we expect for performance in the future?”
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