Transcript PowerPoint - Alaska Permanent Fund Corporation

Alaska’s Permanent Fund
an overview for Alaska students
Three important questions about our Permanent Fund
Lesson 1 –
How did Alaska GET a Permanent Fund?
Lesson 2 –
What IS the Permanent Fund?
Lesson 3 –
What is the Permanent Fund FOR?
Lesson 1: How did Alaska get a Permanent Fund?
Transitioning to an oil-based economy…
1968: Bonanza!
1957 – 1968…exploratory drilling Alaska.
1968 – Atlantic Richfield strikes oil in Prudhoe
Bay. Recoverable oil reserves estimated at
9.6 BILLION barrels.
Alaska’s annual
budget in 1969?
$112 million
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”
1969 – 1975: How Alaska used its budget surplus
The Legislature spent money on many new projects and
programs such as the Student Loan Program, the Longevity
Bonus Program and infrastructure projects.
1968-1976…getting the oil to market:
building the Alaska Pipeline
1968 – 1971 Progress stalls as oil companies wait for land claims
with Alaska Native people to be resolved before
developing oil fields.
1971 – President Nixon signs Alaska Native Claims Settlement
Act (ANCSA)
1973 – Congress passes TransAlaska Pipeline Authorization Act
1974 – 1976 Pipeline construction
A second windfall was coming…
What would Alaska do this time?
1976 Alaska voters approve a constitutional amendment
establishing the Permanent Fund
Representative Hugh Malone
Governor Jay Hammond and the Legislature
1977 Permanent Fund receives its first deposit of
constitutionally dedicated oil revenues; $734,000
Permanent Fund constitutional amendment
2 out of 3 voters said “Yes”
to a Permanent Fund!
1977 - 1980 Alaskans debate:
“How should Fund earnings be 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?
Was the Permanent Fund a good idea?
1977:
2006:
Dividends
paid out
1982 - 2006:
Why we have a Permanent Fund…
$6
State General Fund mineral revenues
$5
Fund investment earnings that may be spent
$3
$2
$1
20
24
20
16
20
08
20
00
19
92
19
84
$0
19
76
Billions
$4
1980: Legislature creates the Alaska Permanent Fund
Corporation to manage the Fund
Juneau office building
APFC Board of Trustees
Finance group
Investment group
Lesson 2 – What IS the Permanent Fund?
STOCKS
BONDS
REAL ESTATE
Investing: trying to manage risk…
Inflation
The economy
Principal
Price of oil
Interest
rates
Politics/elections
Liquidity
Investment
management
Credit
Markets
Corporate
governance
?
Natural
disasters
The relationship between risk and reward…
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
16%
14%
Inflation rate*
12%
10%
8%
6%
4%
2%
0%
78
80
82
84
86
* based on US Consumer Price Index
88
90
92
94
96
98
0
2
4
6
How inflation affects the Permanent Fund:
total return – inflation = real return
* based on US Consumer Price Index
Money’s only value is what it can buy!
Germany 1923/24: heating with money
Lesson 3 - What is the Permanent Fund for?
1. Who can spend money from the Fund ?
2. How much can be spent ?
3. What can Fund money be spent on ?
...for YOU to decide…