Valerie Mertz

Valerie Mertz, acting executive director of the Alaska Permanent Fund Corp., testified before the House Finance Committee in Juneau Tuesday, Jan. 25, 2022. 

Alaska Permanent Fund’s investment leaders testified at the Legislature Tuesday, assuring lawmakers they are committed to the $80 billion fund’s stewardship and growth.

Valerie Mertz, chief financial officer and acting director, answered questions at a House Finance Committee hearing, as did Marcus Frampton, chief investment officer.

They told lawmakers that investment managers are focused on maximizing returns for Alaska.

The Alaska Permanent Fund Corp. has been at the center of a legislative investigation into the sudden dismissal of Angela Rodell, who served as executive director and chief executive officer since 2015. Trustees fired Rodell in December without explanation and have launched a search for her permanent replacement.

Mertz, who is serving as interim CEO, told lawmakers that the 50-member staff has not let the news and controversy over the dismissal affect their commitment.

“The work continues at the corporation with a staff of more than 50 professional people,” Mertz said. “They have not let the recent events impact the good work that they are doing.”

Mertz offered some background on herself and her work at the fund. “I have lived in Alaska for 42 years. Growing up, public service was our livelihood. So working at the Permanent Fund seemed right to me,” said Mertz, who is trained as a certified public accountant.

She emphasized that investment managers follow a vision of returning outstanding benefits “for all current and future generations” of Alaskans. “It drives the work we do everyday at the Permanent Fund,” she said.

As of Nov. 31, 2021, Mertz testified that the fund was valued at just under $81 billion. Of that, $65 billion is in principal, and $15.7 billion is in the earnings reserve account.

Nearly $3.5 billion was set aside for transfer to the state’s general fund. It pays for state services and delivers a dividend to every Alaskan regardless of age.

Mertz pointed out that fiscal year 2021 was an extraordinary year of gains for the fund. She said that the earnings reserve account accrued $31 million per day compared with $12 million per day in fiscal year 2020, which she described as more typical performance for the fund.

She explained that the state’s two-account structure consists of the Permanent Fund and the earnings reserve account. “Mineral royalties contribute to the principal invested into income-producing investments and that spins off earnings into the earnings reserve account,” she said.

The earnings reserve account is available for state appropriations, which account for 70 cents on every dollar for state programs and services. The account also funds corporate operating expenses at the Permanent Fund.

“The principal was established by Constitution as a permanent savings account and is protected from appropriation,” she noted.

Contributions to the principal include deposits of mineral royalties and revenue from leases as well as special appropriations from the Legislature, which total $15 billion since the fund’s inception. Royalties span gas and oil development, as well as mining.

Marcus Frampton, chief investment officer, offered an investment outlook for the committee. He told lawmakers that “we have been in this great period for stocks and risk assets.”

But Frampton said that “we are going into a more difficult investment market than we enjoy today.”

He added that investment managers “take risks very seriously at the fund. We take a sophisticated approach to risk management.”

Republican Rep. Bart LeBon of Fairbanks noted that some banking companies have expressed reluctance or an unwillingness to invest in oil and gas in the Alaskan Arctic.

The Alaska Industrial Development and Export Authority is deciding whether to conduct future investing with banks with these restrictions. LeBon asked whether the APFC “stays out of those fights.”

Frampton responded that the stated positions of the banking companies contradict what he has experienced. He said the statements seem to be more “from the PR department than from the actual business people.”

He noted that Hilcorp obtained financing through JP Morgan Chase & Co., which has articulated policies against Arctic oil and gas investments.

“Almost every major U.S. bank has stated they would not finance Arctic big oil and gas,” Frampton said. “I would be pretty handicapped if you could not trade through those brokers. We do not avoid investing in them. I am skeptical about the positions on the Arctic policies.”

Contact Linda F. Hersey at 907-459-7575 or at lhersey@newsminer.com. Follow her at twitter.com/FDNMpolitics.

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