Alaska Permanent Fund will lower its private equity target and embark on a reduced pacing plan for FY 2024.
Alaska CIO Marcus Frampton has taken a contrarian stance on private equity, claiming high valuations and a changing economy make the asset class expensive. Most large institutional investors feel otherwise, with CIOs and consultants expressing bullishness on private equity.
At its May 18 meeting Alaska’s board approved a recommendation that will reduce the $76.4 billion system’s PE target to 15 percent by FY 2025 – reversing a plan that would have gotten the target up to 19 percent by that year. Affiliate title Buyouts watched a broadcast of the meeting. Alaska’s PE target currently stands at 17 percent.
The board also decided to reduce its private equity pacing plan to $1 billion for FY 2024, down from $1.2 billion the previous year.
Board member Ellie Rubenstein inquired why the board was not considering upping its target and pacing in the current environment.
“I don’t think PE is very attractive right now,” Frampton said, adding that high multiples, rising interest rates and the amount of dry powder held by managers factored into his decision.
Frampton added that Alaska could quickly pivot if conditions became more favorable – especially after the board also approved the creation of a “tactical opportunities” asset class. This new portfolio, which will have a 2 percent target allocation in FY 2024, gives investment staff the flexibility to invest in public and private market opportunities.
Alaska also holds $4.2 billion in unfunded commitments throughout its portfolio, according to Frampton. Alaska’s managers can quickly deploy this money if valuations become more favorable.
“We’re not going to miss out on great deals,” Frampton said.
In a separate presentation, Alaska director of private equity Allen Waldrop said opportunities existed in the energy sector and asset-specific continuation vehicles.
Waldrop also said the system could pivot away from biotech VC funds.
“It gets very expensive to keep playing the game,” Waldrop said.
Waldrop also said Alaska was not planning on selling any assets to secondaries funds. At the same time, Waldrop said the system was hesitant to become a buyer due to the large amount of tech assets held in secondaries funds.
“Those marks haven’t come down. For us, we’d demand a much bigger discount,” Waldrop said.
Waldrop also said the system received $477 million in distributions in 2022, down from $972 million in 2021.
Alaska projects that contributions and distributions will fall below $300 million in the first quarter of 2023, the lowest amount since certain quarters in 2018 and 2019 – a side effect of the slow exit market.
However, Alaska believes that distributions and contributions are expected to climb in the second half of 2023.
According to the presentation, Alaska has received $17.5 billion in distributions since the start of its private equity portfolio in 2004.