What Is the Alaska Permanent Fund?
The Alaska Permanent Fund is an investment fund whose investment capital originates from the surplus revenues gained from the development of Alaska's oil and gas reserves. Managed by the Alaska Permanent Fund Corporation, a state-owned corporation, the fund’s value was $65.9 billion as of Aug. 31, 2020.
The Alaska Permanent Fund pays an annual dividend to all of Alaska's residents that meet certain eligibility requirements.
- The Alaska Permanent Fund is an investment fund that invests capital that originates from surplus revenue obtained from Alaska's oil and gas reserves.
- The fund, which is a sovereign wealth fund, pays out annual dividends to every eligible citizen of Alaska.
- All Alaskan citizens with a residence of one year or more are eligible, except for those who have been convicted of state felonies, are incarcerated, or are convicted of specific misdemeanors.
- The fund invests in a variety of areas, including equities, fixed income, real estate, and private equity.
Understanding the Alaska Permanent Fund
Management of the fund is by the Alaska Permanent Fund Corporation. After completion of the Trans-Alaska Pipeline System, which introduced Alaskan oil to the market in 1976, Alaska’s government added a state constitutional amendment setting aside a share of oil revenues for future generations of Alaskans. The revenues from these natural reserves form the basis of the Alaska Permanent Fund.
The Alaskan constitution specifies that at least 25% of all "mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue-sharing payments, and bonuses received by the State shall be placed in a permanent fund."
Dividends of the Alaska Permanent Fund
The Alaska Permanent Fund pays out annual dividends, called the Permanent Fund Dividend (PFD). To qualify for a dividend, the Alaska residents must have lived a full calendar year in the state and must intend to remain in Alaska.
However, several factors may exclude an individual from eligibility. If during the qualifying calendar year, an individual is sentenced as a result of a conviction of a state felony, incarcerated as a result of a state felony, or convicted of specific misdemeanors, they may no longer be eligible to collect the PFD.
The dividend payout per person for 2020 is $992. This is a decrease from the 2019 payout of $1,606. The highest payout was in 2008 at $2,069. The amount is based on the profits of the fund and can be adjusted by legal intervention. The adjustment is usually a decrease from the intended amount as was seen in 2018.
This dividend payout by the government based on investment returns from investing oil revenue can be seen as a form of universal basic income, though of course, the annual payment amount is too small to actually be an appropriate level of income.
Investments of the Alaska Permanent Fund
For the 2021 investment target, the fund estimates that 39% of its capital will be invested in public equities and 21% in fixed income. After that, investments will be made in private equity and special opportunities (15% of capital) and private income, infrastructure, and credit (9%).
The fund seeks diversification and an average annual return of 5% or more. As of June 30, 2020, the performance over five years is 6.44%.
Other Sovereign Wealth Funds
There are nine states besides Alaska which operate sovereign wealth funds. The funds help to finance specific services or to provide general revenue to the state government itself. Alabama, Alaska, Louisiana, Montana, New Mexico, North Dakota, Oregon, Texas, Utah, and Wyoming all operate sovereign wealth funds.
A sovereign wealth fund consists of pools of money derived from a country or state’s reserves, set aside for investment purposes to benefit the country or state’s economy and citizens. The funding for a sovereign wealth fund comes from central bank reserves that accumulate as a result of budget and trade surpluses. Funds are also generated from the exports of natural resources.
The most massive sovereign wealth funds are Norway’s Government Pension Fund, the United Arab Emirates’ Abu Dhabi Investment Authority, and China’s China Investment Corporation.