The Insatiable Demand for Alpha — SkimNews
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- Alaska sold Arctic drilling rights in a 1969 auction for $900 million, five times its annual budget; after seven years, a constitutional amendment and referendum put at least 25% of oil and mineral royalties into the fund now marking its 50th anniversary.
- Alaska Permanent Fund holds $88 billion in assets; its 5% annual draw finances government services and a resident dividend, with eligible residents receiving $1,200 this year.
- Alaska Permanent Fund brought hedge-fund selection in-house in 2016 after its fund-of-funds program, run by three managers, returned 3.4% annualized over the 10 years through 2016, with two down years and double-fee drag.
- Millennium Management received $300 million from Alaska in early 2019 and another $80 million at the start of 2020, making it the largest holding in the state fund’s hedge-fund portfolio.
- Alaska Permanent Fund now allocates 8% of its total portfolio to 18 hedge-fund managers; the sleeve gained about 8% in 2022 and averaged 6.7% annualized over the nine years since its 2016 restructuring, with no down years and low correlation to overall markets.
- Marcus Frampton said an optimizer would put half the Alaska portfolio in absolute return given the hedge sleeve’s “CPI plus five” return and low correlation, but capacity constraints make the special return harder to preserve as allocations grow.
- Millennium Management grew from $35 billion when Alaska invested to nearly $100 billion; Callan Associates told the fund’s trustees that it “has been closed forever and then reopens periodically,” while its 2.3% October loss stayed within its risk tolerance.
Why it matters: Alaska’s residents benefit from an $88 billion fund that supports a 5% annual draw and a $1,200 dividend this year, while its hedge sleeve has averaged 6.7% annually without a down year. For Millennium and other allocators, scale is the constraint: as it approaches $100 billion, Frampton says more money in absolute-return funds makes elite returns harder to preserve.
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