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Brett Arends’s ROI: Big money trouble with Alaska’s $80 billion oil fund

Something fishy is going on up in Alaska, and it has nothing to do with the state’s famous salmon.

A major political row has broken out at Alaska’s Permanent Fund, the state’s giant $82 billion oil fund, where the firing of the CEO has led to senate hearings, threats of lawsuits, and now an official inquiry.

At the heart of the matter: Control over the state’s enormous pot of gold, whose value is equal to more than $100,000 for every state resident. 

Alaska set up the Permanent Fund in the 1970s, when the state’s oil began to flow, to save and invest oil revenues for the future. (They were even ahead of Norway, which does the same.) The fund has grown to more than $80 billion. It now provides two-thirds of the state’s budget, as well as an annual dividend to each resident that this year will be $1,100. 

Juneau, the state capital, was rocked just before Christmas when the trustees of the fund suddenly, and with no warning, fired CEO Angela Rodell.

The firing came as she reported another excellent year on the markets. Through Nov. 30, 2021, the fund was up 15.2%, well clear of its most challenging benchmarks and 5 percentage points of its passive index benchmark. And this was nothing new: Since Rodell took over in late 2015, the fund has beaten its benchmarks by a clear margin.

“I’m stunned. I can’t wait to see the Board of Trustees’ reasoning for terminating her,” state senator Click Bishop, a member of the state finance committee, told the Anchorage Daily News. “To me, it’s the equivalent of trading Michael Jordan after you’ve won five NBA championships.”

Rodell, the ousted CEO, says the firing was “political retribution” after she opposed plans to pay out bigger dividends to the voters. “I believe my removal to be political retribution for successfully carrying the Board’s mandate to protect the Fund and advocate against any additional draws over the POMV spending rule,” she wrote in a letter to state senator Natasha Von Imhof, who chairs the senate’s budget and audit committee.

The trustees denied the accusation, and then took the extraordinary step of opening up her 300-page personnel file to public scrutiny—although the move has produced more questions than answers.

When contacted for comment on this column, a spokesman for the trustees said they wouldn’t be commenting beyond what has been said in public.

Rodell’s firing was supported by five of the trustees who were appointed by current governor Mike Dunleavy. But the sixth, appointed by previous governor Bill Walker, voted to keep her.

Alaska’s state senate has just launched an investigation, after failing to get satisfactory answers from the trustees’ chairman, Craig Richards.

“We’re not here, prepared today to go into an in-depth, detailed analysis of everything she did right and everything she did wrong,” Richards told the senate budget and audit committee.

“That’s most unfortunate, because you had a month to prepare,” committee chairwoman Nasta Von Imhof replied.

At other stages Richards offered the somewhat unsatisfactory explanation that Rodell was an “at-will employee” and firing her was “the board’s prerogative,” which doesn’t say much more than “we fired her because we could.”

Nor were senators mollified when he told them, “What is best for the fund is to move on.”

(Memo to spin doctors: “Let’s just move on,” and equivalents, hasn’t worked at least since baseball star Mark McGwire infamous “I’m not here to talk about the past” fiasco in 2005.)

Rodell herself is taking legal advice. She could not be reached for comment.

Meanwhile, every state should have Alaska’s problems. While most states are struggling with unfunded pension liabilities, Alaska has to work out what to do with all its spare money. The fund’s value dwarfs the funding gap in state pension plans, which was less than $10 billion even before 2021’s stellar year.

The fund’s investment performance has been very good of late, buoyed by a big stake in private equity.

But that can be a risk, as former U.S. senator Frank Murkowski warns. Any fund run by politicians that invests in obscure and opaque “private” funds could end up a corruption nightmare. (Norway’s state fund sticks to indexes.)

Private equity raises other issues, too, including transparency, liquidity, and whether its recent outperformance can continue.

The Alaskan pension fund uses a benchmark that looks pretty good for any long-term investor: 60% global stocks, 10% global REITS, 10% Treasury inflation-protected securities and 20% global bonds.

If you know a fund manager who is looking for a new job, tell them to get on the phone to Juneau. Apparently the job pays $400,000 a year. You could move the entire fund into four index funds (like Vanguard Total World Stock VT, +0.12%, iShares Global REIT REET, -1.11%, Schwab U.S. TIPS SCHP, -0.58% and Vanguard Total World Bond BNDW, -0.54% ), lay off all the staff to save costs, and go fishing.

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