Permanent fund needs more public engagement to survive
The trustees of the Permanent Fund didn’t care much for the advance coverage published here since September about proposals they put forward to take on more risk to try to speed the growth of the fund to $100 billion.
They made this clear during the meeting October 30 at which they rejected key proposals they had been mulling for months.
I think I made it clear in a series of blog posts over the last two months that the trustees were on the wrong track with their strategic plan because they failed to include the public and the Legislature. Their process was rushed and reckless.
In the end, they did the right thing and followed the advice of financial experts by pulling back, at least temporarily.
What I don’t understand is why they waited so long to ask for advice. Or why they aren’t making a concerted effort to ask Alaskans what the strategic plan should include.
They spent months coming up with a big picture plan to shift billions more from fixed income investments to private equity; borrow billions more to increase the amount of money the fund has invested to juice returns; and raise the investment goal above the traditional target of 5 percent plus inflation.
The thrust of their complaints about my coverage was that these fundamental proposals were nothing more than “brainstorming” that hadn’t been vetted in public.
That’s not true.
The trustees should listen to the annual Permanent Fund meeting on September 28 to refresh their memories of what they talked about and were told. They should read the documents presented that day about how getting to $100 billion would mean changing asset allocation and taking on more risk.
Because of the state law requiring open meetings by government bodies, only three of the trustees can meet at a time in private to discuss the Permanent Fund. The requirement is good policy. The trustees need to stop moaning about it.
All six could have met regularly on the strategic plan by holding public meetings, which is what the trustees should have done. But they refused to do that, preferring off-the-record sessions.
When Trustee Gabrielle Rubenstein appeared at the “Davos in the Desert” conference in Saudi Arabia in late October, she predicted approval of a plan to make fundamental changes to be able to reach $100 billion in three to five years. She was speaking about ideas that had been in circulation for months among the trustees.
At a Sept. 7 meeting, trustee Ethan Schutt said it would be reasonable for the fund to have a goal of getting to $100 billion somewhere in the next three to five years. The only way to increase returns is to take on more risk.
On September 28, Rubenstein asked Chief Investment Officer Marcus Frampton at the annual meeting if he liked using $100 billion as a target for assets under management.
“I think that’s a reasonable number to be shooting for, it’s not overly ambitious. Just in the status quo we can expect to be there in about a decade and there are some ways to target it faster. It’s within the realm of reasonableness,” he said.
Frampton said “It’s not like if I said my goal was to be a male underwear model,” which he said would not be realistic.
Trustees Rubenstein, Craig Richards, Jason Brune and earlier, Adam Crum, had been meeting weekly in private to come up with the strategic plan. (Crum was too busy with his job as revenue commissioner, the permanent fund spokeswoman said, and he dropped out to make room for Brune on the three-member committee.)
The trustees hired a facilitator for $33,950 to work with them on specifics.
At the start of the October 30 meeting, Richards turned defensive and tried to distance himself from the ideas that came out of the three-member committee he was part of.
“This is a strategic planning exercise. It is in many ways a brainstorming exercise, so the ideas that have been put forward—it’s not like they’ve been pre-vetted and people have agreed or not agreed. It’s just, this is our opportunity with staff to have a dialogue. And some ideas will be good ones. And some ideas won’t be adopted,” he said.
The Permanent Fund staff worked with the three-member committee and came up with detailed slides about changing asset allocations and taking on more risk. It’s false to claim that there was no chance to discuss this in advance with the staff.
Richards continued: “We can’t get together in advance and work through all these ideas in a private setting. We have to do it in the open. So the only practical way to take on things that might seem big ideas is to have this kind of public dialogue to decide if they’re good ideas or bad ideas.”
“I hope everyone that listens understands that this is a brainstorming exercise in many ways. It’s midway through a process to begin to create a strategic plan,” he said.
He was protesting too much. The agenda for the meeting was to either adopt a strategic plan October 30 or propose changes to adopt the plan in December. It was not “midway through a process to begin to create a strategic plan.”
Rubenstein, in contrast to what she had said days earlier in Saudi Arabia, also said that it was all brainstorming and she had a message for the media and the public.
“Glad to see you all so engaged, but I would also say we have done everything by the Open Meetings Act. So, I don’t know of any other board in this state, let alone other boards that would ever actually publish their brainstorming,” she said.
“So we would just ask for your respect in return. as we now publicly deliberate, and remember there are members of the board that haven’t even seen these ideas until now,” she said. “Because of Open Meetings Act where we have the working group meetings and only three people could be on it. So I’m glad to see everybody engaged.”
(As I said, this complaint about the public meetings requirement is not one to be taken seriously. The trustees decided not to meet in public. They met in private, meaning that only three members could attend. They were wrong.)
Jason Brune said he agreed with everything Richards and Rubenstein had said about brainstorming and meetings, etc.
“I also want to say that for all of the diatribe that’s been out there by the bloggers and the media, it’s disappointing to only see two people come to testify today,” Brune said.
“If the public doesn’t show up, you know, we have the responsibility to act regardless. But we do want to hear the public’s input on these concepts,” he said.
Brune said the trustees are doing what they can to generate public interest. That’s not true.
By failing to hold community meetings, failing to meet in public with electronic access, failing to effectively advertise the elements of the strategic plan and failing to promote the October 30 meeting and the details of how to give testimony, the fund did little to generate public involvement.
Getting more public engagement is critical for the survival of the Permanent Fund. I plan to write more about this soon and where the fund should be spending the extra money it wants for public relations purposes.
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