How Alaska does co-investment

Alaska Permanent Fund’s co-investment programme has consistently outperformed its fund portfolio.

Alaska Permanent Fund’s co-investment programme began with infrastructure in 2012, expanded to private equity in 2013 and went into private credit last year. However, the philosophy is rooted in the work Marcus Frampton, chief investment officer, and Steve Moseley, head of alternative investments, did at PCG Capital Partners more than a decade ago.

Alaska’s $1.58 billion private equity and special opportunities (PESO) co-investment programme has consistently outperformed its fund portfolio, delivering an internal rate of return of 63.4 percent annually since inception five-and-a-half years ago. It returned 47.4 percent over one year as of 30 September.

The six-member private equity team makes a judgment on the underlying investment and the sponsor through its diligence process.

“We are not counting on the GP to make a co-investment decision for us or substituting their judgment for ours,” Moseley says.

Indeed, Alaska’s goal is not to be an investment partner of choice in every situation; it is seeking situations where it is the best fit, Frampton says. As a permanent fund, Alaska has structural flexibility, allowing it to co-invest in opportunities where it can be more than just a capital provider. The team also responds quickly, focusing on “the types of transactions where we can be early and helpful”, Moseley says.

Case in point: its 2017 investment in Premia Re, a specialty insurance investment led by Kelso & Company. Alaska underwrote an equity piece alongside Kelso.

“We were able to tell them fairly quickly that we could invest between $50 million and $150 million,” Moseley says. Alaska ended up investing $75 million, and Kelso brought in another LP who wanted to invest but did not commit earlier in the process. “Our goal was to facilitate the transaction for our own sake and to support Kelso,” Moseley adds.

Alaska saw almost 400 deals last year, but quickly ruled out the majority of them.

“Either the circumstances didn’t fit, or it did not complement our portfolio or it was not a GP in which we had a lot of comfort,” Moseley says.

“What made it through our funnel outperformed by a couple thousand basis points,” Frampton adds.