The Insatiable Demand for Alpha
Why a market shakedown could leave the biggest pod shops stronger
The Alaska Permanent Fund, launched 50 years ago this week, has assets of $88 billion. Each year, eligible residents receive a check for $1,200. Initially, the fund was invested solely in bonds, but it diversified into stocks and real estate in 1983. Its mandate was later expanded to allow alternative investments, including hedge funds.
For years, hedge fund investments were managed through a fund-of-funds program, but performance was disappointing. In 2016, the fund transitioned to managing hedge funds in-house, targeting managers with a proven track record in down markets. Millennium Management became the largest single holding in the fund's hedge fund portfolio.
Despite a weak performance in 2022, the fund's average annualized return of 6.7% with no down years since the restructuring has been impressive. The fund's chief investment officer, Marcus Frampton, suggests that the fund could allocate up to half of its portfolio to hedge funds for potentially higher returns, but capacity constraints from top managers may limit this strategy.
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