With Alaska’s budget woes growing and markets becoming more precarious, the state’s $80.1 billion Permanent Fund is feeling the pressure to deliver on its return objectives. As the state’s main source of general-purpose revenue, the Alaska Permanent Fund Corp. has a critical responsibility to its stakeholders — something its Chief Investment Officer Marcus Frampton is acutely aware of.
“Our state has some real budget issues right now and relies on us for funding,” Frampton told Institutional Investor, adding that “when so many people are relying on the fund and markets are quite uncertain,” ensuring that it achieves its objectives “feels like a big responsibility.”
Despite the added pressure, the APFC’s investment chief believes the fund’s strategy of global diversification “will thrive” — and give the state’s sovereign wealth fund a leg-up over more U.S.-focused investors.
“We’re a bit defensive, but we think we’re quite well prepared compared to where other investors may be,” Frampton added.
Growing Budget Concerns
Alaska faces a $200 million deficit this fiscal year, driven by declining oil revenue — which historically provides 40 percent of the state’s general-purpose income. The state’s revenue department now forecasts just $6.13 billion in revenue for fiscal 2026, $70 million below earlier projections.
With oil revenues declining, the APFC disclosed in July that it lacked sufficient liquidity to immediately cover portions of the state’s budget. While not an immediate issue, it adds pressure on the sovereign wealth fund to have enough cash on hand while also achieving its mandated return objective of CPI +5 percent.
APFC operates as a sovereign wealth fund, funded by oil revenues rather than employee contributions. Unlike public pensions, which exist to pay retiree benefits, this fund serves all Alaskans and helps fund public services. The fund has two parts — a protected principal that can never be spent, and investment earnings used for dividend payments to residents and state government operations.
With its global focus, roughly half of the fund’s public equity holdings are non-U.S. stocks, which Frampton acknowledged has at times hurt performance. Over the last decade, U.S. equities have significantly outperformed non-U.S. stocks by a wide margin — and have done so with less volatility. As measured by Morningstar, U.S. equities delivered 12 percent annualized returns from 2010 through 2022, while global ex-U.S. stocks returned 4.4 percent during that period. Still, having half of the stock portfolio in international for years is now looking like a good bet.
But the gap in performance has also made it difficult for the fund to justify costlier options like hedge funds to the public. However, Frampton has seen investors become “a little less comfortable with U.S. investments” as markets whipsaw, expensive large-cap growth stocks decline, and countries like China become more appealing, despite tensions with the U.S., with advancements in AI.
“We’ve been in a very narrow market for a long time, led by large-cap U.S. tech stocks,” he explained. “I believe that a broadening out of market leaders should accrue to our portfolio’s benefit.”
Periodic struggles with performance aside, Frampton argues the fund has “done quite well” — APFC posted a 7.9 percent return for the 2024 fiscal year, and its five-year average return of 8.2 percent continues to beat its target of 5 percent above inflation as measured by the Consumer Price Index.
Frampton added that while APFC pursues global opportunities, the investment team won’t participate in reactive strategies driven by headline events like tariff announcements.
Starting With a Blank Piece of Paper
II spoke with Frampton as his team was rethinking the fund’s asset allocation as part of its annual rebalancing assignment. The portfolio currently has 33 percent allocated to stocks, 18 percent each to private equity and fixed income, 12 percent to real estate, 9 percent to private income (covering infrastructure and private credit), 7 percent to absolute return strategies (including hedge funds), and the rest in tactical strategies and cash.
This time, the board has asked the fund to start “with a blank piece of paper and come up with different options” for rebalancing the portfolio. With spreads to Treasuries “very low,” Frampton said the fund may allocate less to commercial real estate and more to stocks or private equity — a sector it trimmed in 2023 but rebuilt in 2024. Regardless of how the portfolio is rebalanced, the priority is still to remain globally diversified.
“If you revert to the mean on valuations, you want to be globally diversified.” Frampton said, adding that he has seen more investors broaden their geographic exposure — something he believes “could be a long-term shift.”
Looking ahead, Frampton expects markets to be “more volatile going forward than steady and up.” So, APFC is looking to ensure that it “has the right amount of liquidity if we’re in a recession and are smart about” the debt maturities in its real estate portfolio.”
Frampton warned that “it’s been quite a while” since people have experienced a financial collapse like the global financial crisis of 2008. “The March 2020 drawdown was pretty brief,” he said, noting that “the real black swan event would be if the Fed can’t ride to the rescue like they did in 2009.”
Still, Frampton expressed confidence in APFC’s preparedness. “Our style for the Permanent Fund will shine,” he said.
