Alaska reaps reward for going direct

The sovereign wealth fund’s $7.2bn private equity and special opportunities portfolio returned 32.7% for the year ending 30 June.

Alaska Permanent Fund Corporation’s private equity portfolio has generated the institution’s best-ever annual return for a single asset class following strong direct investment performances.

The sovereign wealth fund’s $7.2 billion private equity and special opportunities portfolio returned 32.7 percent for the year ending 30 June, according to its 2018 annual report. Special opportunities, which includes co-investments and directs, gained 40.1 percent, while private equity funds returned 27.9 percent.

The portfolio significantly outperformed its Cambridge Private Equity Benchmark, which returned 18.3 percent.

“In FY18, the private equity market continued its upward trajectory, with heightened valuation driven by aggressive competition for investments,” the report said. “Against this backdrop, APFC has endeavoured to invest in funds and operating companies that leverage transformative operational intervention and accretive buy-and-build strategies to generate above-market returns.”

APFC made a 9.7x cash-on-cash return in January from the sale of drugmaker Juno Therapeutics, a co-investment with Crestline Investors. The fund has invested $1.1 billion into 22 operating companies, generating a 2.8x multiple of cost and $1.8 billion gain since the arrival of PE head Stephen Moseley in 2013.

Moseley was brought in to launch a directs strategy alongside real assets director Marcus Frampton, who was promoted to chief investment officer on 28 September. The pair were previously colleagues at pensions advisory Pacific Corporate Group, where they managed two direct investment vehicles.

The fund had an 11 percent target allocation to private equity as of 30 June, with private equity and special opportunities accounting for around 9 percent of its $64.9 billion of assets under management. It had $4.1 billion of outstanding future fund commitments for private equity.

APFC intends to increase its overall PE exposure to approximately 14 percent in two years, with its composition expected to become “increasingly international”, chief executive Angela Rodell told Private Equity International in April.

In 2018, the fund’s external advisors determined that eight private equity funds were impaired and would not recover their carrying cost – which can include financial outflows such as loan repayments – over the remaining estimated holding period of the assets. In order to reflect the impairment in statutory net income and fund balance classifications, $25.7 million of unrealised losses were realised through a write-down of cost to fair value, the report said.

Nine private equity funds were impaired in FY2017, with a related write-down of $26.4 million. These impairments have no impact on the carrying value of investments or on the net increase in the fair value of private equity investments.

The fund returned 10.8 percent across all asset classes for the year. Public equities accounted for the lion’s share of assets at $26.7 billion, followed by fixed income at $13.9 billion.