Alaska fills special opportunities bucket with real return mandates

MikeBurns04The Alaska Permanent Fund will appoint four real return managers in March next year to manage a total of $2 billion in mandates that will have very few restrictions, and has shortlisted five managers to fill the brief, as part of its special opportunities bucket that makes up 21 per cent of the total fund.

Mike Burns, executive director of the $34 billion fund, said through these mandates the fund’s investment staff and trustees could observe the investment thinking of the managers and that it was an educational opportunity for staff to observe “how people think differently to us”.

The few restrictions on the mandates will be real estate and illiquid assets with more than two year lockups, as well as the requirement that a senior investment officer come to at least one board meeting at least once a year.

The approved shortlist of managers are AQR Capital, Bridgewater Associates, GMO, Goldman Sachs Asset Management and PIMCO.

The board said that all five managers have demonstrated their ability to produce superior risk-adjusted returns, with lower volatility, smaller drawdowns and higher liquidity than the other search candidates. It is expected that the four final firms will be selected and funded by March 30, 2010.

Within the special opportunities bucket the fund has also invested in commercial mortgage backed securities, distressed debt, and absolute return and has undergone a search for mezzanine debt.

The process to select the real return managers has been in conjunction with Callan Associates and originated with a shortlist of 30 managers.

As reported by the board took a different approach to asset allocation this year that is a good fit for an all-weather portfolio.

Rather than taking the traditional tack of grouping investments by asset class, the board decided to group investments by their risk and return profiles, and by the market condition or liability that each group is intended to address.

Asset allocation by economic conditions

Company exposures 53%

special opportunities 21%

real assets 18%

interest rates 6%

cash 2%

Asset allocation by traditional asset classes, 2009

stocks 38%

bonds 22%

real estate 12%

cash 2%

infrastructure 3%

absolute return strategies 6%

private equity 6%

other 11%

asset allocation by economic conditions, 2009

company exposure 53%

special opportunities 21%

real assets 18%

interest rates 6%

cash 2%