Permanent Fund Loses $1 Billion in One Day

By | August 10, 2011

Aug. 10 (Source: By Sean Cockerham, Anchorage Daily News, Alaska) - The Alaska Permanent Fund’s value dropped more than a billion dollars in a single day Monday when the stock market tumbled, and even after Tuesday’s market rally is estimated to be about $2 billion down from its June 30 heights.The market value of the fund reached $40.1 billion at the close of the fiscal year on June 30. That was the highest it has ever ended the year, prompting officials to send out an Aug. 2 announcement to the news media that led to widespread coverage of the fund’s success.

But there’s been an estimated $2 billion drop from the June 30 level that included a $394 million reduction Friday and more than a billion on Monday.

The results of Tuesday’s rally on the total value of the fund won’t be clear until today but Permanent Fund officials expect it likely recovered around $670 million of its recent losses to put the total fund value in the neighborhood of $38 billion.

“These are a couple pretty volatile days,” Michael Burns, chief executive of the Alaska Permanent Fund Corp. said in an interview Tuesday. “I want to remind people we are very long term investors.”

The current volatility is not going to change the amount of the next round of Permanent Fund dividend checks all eligible Alaskans will receive this fall. The size of the checks is calculated based on the fund’s cash profits over the past five fiscal years.

This year, the fund expects to transfer $800 million to the dividend division for checks to Alaskans. Last year, $858 million was transferred. That resulted in checks of $1,281 for each of the nearly 641,600 Alaskans who were eligible.

Stocks comprise about half of the total value of the fund, which is also invested in bonds and real estate. The market value of the fund stood at $34.7 billion a year ago before soaring to the $40.1 billion on June 30 and then going down to the roughly $38 billion level that officials now figure.

The stock market plunged on Monday under the weight of the financial crisis in Europe and economic pessimism in the United States, with the Dow Jones Industrials down 634 points. But the Dow rose 429 points on Tuesday after the Federal Reserve made statements including a pledge to keep interest rates down until at least mid-2013.

The market value of the fund had been $37.2 billion at the close of what Burns called a “devastating” Monday. That capped a bad period in the markets that dropped the fund from the celebrated $40.1 billion heights reported on June 30.

“The first part of July the market was pretty strong and then from about the middle of July on it has headed down. Nothing like it did on Monday but also nothing like (Tuesday’s rally),” Burns said.

Burns said Permanent Fund officials actually decided early Tuesday to put more money into the stock market as part of the “rebalancing” they do when fund assets aren’t meeting their targets.

He said they decided to take $400 million, most of which came out of the fund’s bond investments, and move it into the stock market.

“The discipline of rebalancing your assets is, and this is hard to do, but you take money out of what’s working and put it where it isn’t working,” Burns said. “That forces you to buy when things are down.”

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Reach Sean Cockerham at scockerham@adn.com or 257-4344.

Source: By Sean Cockerham, Anchorage Daily News, Alaska

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Copyright (c) 2011, Anchorage Daily News, Alaska

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A service of YellowBrix, Inc. Publication date: 2011-08-10

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