Odd Lots - Lessons From A Sovereign Wealth Fund in the United States (Correct)

Episode Date: August 18, 2025

President Trump and others have talked about the idea of the US having a Sovereign Wealth Fund, a la the UAE or Singapore. It feels like a longshot, but as it turns out, there are actually several Sovereign Wealth Funds in the United States, one of which is the Alaska Permanent Fund. The fund was established in the 1970s to manage the state’s booming oil fortune, and ensure that the boom benefitted the residents of the state for years into the future. Today the fund manages over $80 billion, contributing a substantial portion each year to Alaska’s state budget, including an annual check paid directly to almost all residents of the state. On this episode, we speak with the fund’s CEO Deven Mitchell and CIO Marcus Frampton about how the fund operates, its relationship with the government of Alaska, and how it’s investing its money in order to fulfill its purpose long into the future. We also discuss what lessons from the APF could apply to any similar project done at a national level. Only Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox — now delivered every weekday — plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlots(Corrects Alaska Permanent Fund as the only Sovereign Wealth Fund in the US in headline and description)See omnystudio.com/listener for privacy information.

Bloomberg Audio Studios. Podcasts Radio News. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthall. And I'm Tracy Allaway. Tracy, we're back here in New York City where it's warm. And the sun sets at a normal hour of the day, and I don't need to have blackout curtains.

But I had a really good time on our recent voyage to Alaska. Alaska was great. I don't know why the overall state population has been declining. Yeah, I don't know. It's great. You move there. There's nice weather, at least in the summer. In the summer.

Beautiful scenery. Yes. As much salmon as you can fish out of the rivers. And every year, you get paid some money by the state. Yeah, that's exactly right. No, there is a lot to like about it. I think it's for a type of person. It certainly has a lot going for it.

But it was really nice. You know, I didn't really know much about Alaska. I didn't have much feel for its layout. I didn't have much feel for its geography. I truly did feel like I was sort of at the far west. Western edge of the empire out there, very, very distant. It has a very frontier feel. I mean, that's why they call it, the last frontier.

Extremely frontier feel. And, of course, we talk to people in all kinds of industry there, et cetera. But as you mentioned, one thing that people know about Alaska, I mean, people know there's oil. And also, people know that there is something that kind of resembles perhaps a sovereign wealth fund. And also that every citizen over, I think, the age of like 18 months or whatever, 10 months or something, gets a check from the state, which sounds pretty nice.

It sounds nice. It also sounds like a loaded political and financial hot potato, right? And I can imagine every year there is probably lots and lots of debate about exactly how much is going to be dispersed, what it means for the future of the fund, how it interacts with state and federal funding. I'm excited to talk about all of that. But I think we should also add that this has new relevance, right, to the wider United States of America, because there is talk about starting a U.S. sovereign wealth fund. And there is also. the payments for kids, for infants from the Trump administration. That's right. That's right. Whether anything at the federal level that resembles a sovereign wealth fund or any sort of fund would actually happen, who knows. But we have certain models of all this stuff, and it's worth learning a little bit more how they work. And I do think to sort of conclude our intellectual journey and our literal journey to Alaska, we sort of have to touch on this element. Absolutely. Let's do it. Okay. Well, I'm really excited to say we literally have the two perfect guests to talk about the Alaska

Permanent Fund and what it is. We're going to be speaking with Marcus Frampton. He is the CIO of the Alaska Permanent Fund and Devin Mitchell, CEO of the Alaska Permanent Fund. So Marcus and Devin, thank you so much both for coming on the Odd Lots podcast. Yeah, thank you. We're happy to be here. Why don't we start with maybe one of you could just give us the very quick, like, what is the size of the fund and how it went and why was it started? So this is Devin Mitchell and I'll take that question. when you think about Alaska and you guys have just a small sample of Alaska, of course, when you think about it, you went to the largest city in Alaska, but if you superimposed Alaska over the continental U.S.,

you would have each of the coast touched by Alaska as well as the southern and northern borders. So it's a huge state. Let's say you went to Nebraska. So you didn't really experience all that Alaska has to offer, but certainly it sounds like you got a good sample. The state's a young state. We became a state in 1959. And when Alaska became a state, there was a lot of concern about the ability of Alaska to support itself economically

because of a relatively small population, remote location, lack of understanding about the state. And so the state was created as a resource state, meaning that the state retained the right, the subservis mineral rights of the land in Alaska that it selected at statehood. And so in 1968, Prudeau Bay was studied. discovered the largest oil field in North America. And the next year in 1969, there was a lease sale that generated $900 million of revenue for the state. And this is at a time when the state's budget was $150 million. And so an incredible amount of money for the day for the state, people thought it was so much money they couldn't possibly spend it all. It initiated a process

that resulted in the Trans-Alaska pipeline being constructed. But by the mid-1970, that money was clearly going to be finally expended before the Trans-Alaska pipeline was completed. And that set the stage for people to recognize that oil was a one-time, finite resource and a revenue generator. And there were forward-thinking people of that generation that were willing to set aside a portion of their current year revenue for the benefit of future generations of Alaskans. And that culminated with a constitutional amendment in 1976 that dedicated 25% of royalty revenues to the state of Alaska. It required that that revenue once saved be invested, and it required that the earnings of the fund be made available to the state. And so we've subsequently initiated the permanent fund dividend program to allow residents to have a stake.

in the program, and it's evolved today to where it's our largest single revenue source, it's approximately 60% of the state's revenue. Yeah, that's a hefty chunk. Marcus, why don't you give us from the sort of portfolio standpoint, talk to us about how the fund has evolved over time. So, 1976, you know, it gets set up. What do the initial investments look like? And what do they look like today?

Yeah, sure. So this is Marcus Frampton. I'm the chief investment officer. Initially, when the fund was set up, we were in a very high interest rate environment at the end of the 70s. Equities had kind of fallen out of favor, and so it was very much a fixed income fund up until the mid-1980s. Real estate was introduced at that point as the second asset class in the early 90s, first domestic stocks, and then later in the mid-90s, international stocks were added. In the early 2000s, we added hedge funds and private credit and private equity.

and have grown those alternative asset classes, like many of our peers, the university endowments and pensions have grown. So today, the fund itself is around $85 billion. Our largest asset classes is public equities. That money is managed against the All-Country World Index, so a very global index. We trade bonds internally, high yield through investment grade, and then have alternatives and privates that are kind of 40% of the fund today. So our asset allocation is not unlike, you know, many university endowments for pension funds today. And we managed to an inflation plus 5% return with the aim of dispersing roughly 5% of the

fund to the state, both for state spending and the dividend program, and then having the remainder maintain its value with inflation is why we target that inflation plus. five. I'm curious, you know, markets are markets and sometimes asset valuations go down in a year. What happens then for either the fund or Alaska when there's a bad year? Maybe it's like 2022 and stocks have a pretty rough year or 2008 and 2009 and stocks have a rough year. What happens when you can't satisfy the demand for state revenue or, you know, I guess partly those dividends? What happens both with the fund and how the state budget works? Yeah, well, at a high level, we've got a very complicated system with a constitutionally protected

principle and then an earnings reserve that accumulates realized earnings. And so at the investment level, we're rebalancing, we're buying stocks and doing all the things all investors do, but I'll hand it to Devin on how we think about the pressure on the earnings reserve in those situations. Sure. So as I said earlier, the constitution. was pretty broad in how it established the fund. And then there's a statutory overlay on top of that.

And the statutory overlay defines earnings or revenue that's available to appropriate as realized income. And so when we have unrealized income, we hold it in either principle or what we call the earnings reserve account. That's where we hold the realized earnings of the fund and a pro rata allocation of unrealized earnings. So when you break down that $85 billion that Marcus referred to earlier, you have about $59 billion that's actually protected principal of the permanent fund. Then you have about $13 billion of unrealized gains allocated to principal. And then you have the earnings reserve account, which is the portion that the legislature can appropriate out of. It has about

6.4 billion that's available for appropriation at this point, has about 2.3 billion of unrealized gains that are allocated towards it. And then that combined is around $9 billion. And then we have the current year's POMV. And our POMV structure has only been in place since 2019. It's a historical five-year average, 5% draw structure. And has, like I said, been providing the majority of state revenue since. But prior to that, the only thing funded out of the permanent fund were permanent fund dividends. So that was a big shift time frame that we've gone through in the last six or seven years. As far as what we would do in a negative earnings year, if we had unrealized losses, it would just diminish that war chest of unrealized gains we currently have. If it were to

erode beyond that level, then you would be in a situation. at some point where the earnings reserve account would be deficient and there wouldn't be an ability to provide for a transfer to the state of Alaska. And that in part is why we've been advocating at the fund based on our trustees' direction to evolve the fund from this historical model created 50 years ago to something that's a little more modern and a little more in line with a true endowment or sovereign wealth fund and recognize the importance to the state's annual revenue stream that it now represents. So in a year like 2025, if Joe and I were flies in the room when you were maybe actually mosquitoes in the room, given that it's Alaska, if we were in the

room when you were making the decision about what this year's dividend payout is actually going to be, what would the conversations actually sound like? What are the considerations? that you are thinking about as you announce this number? So first of all, we're not those flies. We don't decide how big the permanent fund dividend is going to be. We just earn and provide the annual transfer to the state. The policymakers that decide how much the dividend is going to be are the legislature and the governor.

So in 2019, when they created the percent of market value statutory structure, they left in place the historical or legacy permanent fund dividend statute, which was an earnings model. It was 21% of the last five completed fiscal years earnings. You take that, you split it in half. Half goes to the permanent fund dividend. Half goes theoretically to the state, although the state always just put their half back into the fund. And so our governor has proposed each year of his administration that that formula be followed for purposes of establishing the permanent fund dividend. The difficulty has been that oil revenues have

diminished for the state of Alaska. They're no longer robust enough to provide for the services that residents expect. And so the legislature has gone through a process of determining how much can they provide for a permanent fund dividend at the same time. They provide some level of services that the residents expect. And as you might be able to predict during an election year, miraculously, they find ways to have a little bit larger permanent fund. And during non-election years, maybe they're a little more austere. But it's been a struggle in a more of a debate these last six years. Yeah. Actually, can you talk about that a little bit more from your perspective of thinking about the long-term health of the state of Alaska, the long-term health of the fund,

and so forth? How can either political elected leaders or people such as yourself, whose job is to safeguard the fund for the long term for the benefit of the state of the last? you know, avoid essentially people eating the seed corn, right? Because that's what we're talking about, right? Of course, in an election year, everyone, Democrat or Republican is going to be about protecting or expanding the dividend, regardless of the performance, regardless of how big oil royalties are. How do you sort of keep, you know, I think there's versions of this debate that happened in D.C. What is the discussions like to keep those choices essentially fiscally responsible for the long term? I think the

The discipline that's required in any financial system is something that we circle around to continually, that in the event that you exceed what we've determined to the best degree possible is a reasonable draw, the 5% historical draw is a reasonable draw, if you want to ensure that you have an inflation-proof fund into the future, that to the extent you deviate from that because there's available money in the earnings reserve account, that's just the first time that you're going to overspend. And next year, there's going to be another reason that you overspend. And you're almost ensuring that the system's going to fail. And I circle around to why does this money even exist? It exists because there were 50 generations of Alaskans before this generation that didn't spend

all of the current year revenue that came in. They put some of that revenue aside. And they didn't do that for the benefit of any individual that was going to live in the state of Alaska in 2025 or 26. They did it for the state of Alaska. So the state of Alaska would have the resources to survive into the future. And so that sacrifice of the past generations of Alaskans to ensure that we have this incredible resource and revenue source for the state to provide for not just services. Remember, we're not just arguing about school funding and public safety and bro. and the normal things, we're arguing about how much money to give away to our residents. That's such an incredible gift that the past generations have given to this generation.

And that same gift needs to be enshrined for the future of the state. Marcus, how does declining oil revenue or just the cyclicality of the oil business feed into your actual investment decisions? You know, if the price of crude goes down, is that a year where maybe you invest in riskier, higher yielding things? Do you calibrate it in that way? Yeah, sure. So today, the royalty income to the fund is less than a billion a year, and we're dispersing over three billion a year to the state through the 5% draw. So movements in oil do impact our inflows, but very marginally relative to the size of the fund. And there have been arguments at times of whether we should

invest in oil and gas, given the state's exposure. And we've ended up. And we've ended up. And we've ended up deciding that we do want exposure to oil and gas investments. And so in periods like 2020 and 2021 have leaned into energy private equity and things like that. So we like investing in energy, but it doesn't have an outsized impact on the cash flows of the fund given the size of the royalties. I'm actually really intrigued by that. Can you talk more about that? Because I remember sometimes you hear about these questions, should people in finance have exposure to banks, right, in their portfolio? There's a good reason to say no. because their career is going to be levered to the cycle of the financial cycle.

And if they get laid off, it's probably going to be at a time when bank stocks are low and so forth. So that's actually a very interesting dimension. Can you talk a little bit more about the reasoning for this sort of, in a way, double exposure to energy that the fund has? Yeah. I mean, we feel like energy is an attractive area. So many investors don't want to be in fossil fuels that even today, I mean, in 2021, there was a clear scarcity of capital, and there were comments being made that people weren't to be using fossil fuels in 10 years, which clearly, in our opinion, contradicted the data. So we just liked it from an

opportunistic standpoint. I mean, I think that it's a small enough portion of the S&P 500 and our private equity benchmark that, you know, if the index is at 4% and we're at 5, it's not like an outsized impact. I mean, you see tech people that work at Google. and their whole portfolios and tech, and I would advise against that. But I think our sizing is reasonable, and we like the outlook for oil and gas, so we're active there. Just to give you an idea of the magnitude of the royalties that are coming to the fund at this point, the high and the low over the last 10 years are only $200 million apart, $315-ish for the low and $5.40-ish for the high. And so in comparison to revenues and investments of the fund fairly inconsequential.

Other than generating a return and being able to fund the state and pay out a nice bonus to citizens, which in itself are two big things to be doing, are there any other goals that you have in terms of investment? Are you trying to build out more infrastructure in Alaska? Are you conscious of the specific projects that you're funding? We invest entirely with a financial lens, and that was, with the exception of one, there's one state law that says if, or in our regs that say that if there's an investment of equivalent risk in return, we should prefer the Alaskan investment. It's very difficult to measure that. Like, if you look at the stock market, I think there's one stock, Northrim Bank that's an Alaskan-based stock on an exchange. So a strict interpretation would be that we have to like compare Northrim Bank to every community bank. And I like Northrum Bank and like we own stock in North Thurne Bank, but there's a limit to how much you can have in a 300 million market cap community bank.

And so. It's done pretty well. I just pulled up the chart. It's a pretty six. It's a small little bank, but it looks like this. It's a nice chart. Yeah. And I have an account there.

I like Northrim Bank. So none of this is meant to denigrate Northrim Bank. We love North Room Bank. But so when there are opportunities in Alaska, we will take a look probably more frequently than we would if it was a random opportunity in another state. But our mandate is very much highest and best return financially. And some of our private equity managers have done deals in the state. And we have some minor investment activity in the state, but that's the overall look that we take. And again, it goes back to the development fund model versus a public trust.

model, and that was the debate that happened in the 1970s from 76 to 1980, and the public trust model one rather than we're going to try to invest this money in Alaska and develop Alaska. Alberta Heritage Fund is actually a good proxy for how you might expect a fund to have performed, if it were, a development model. and when you compare the performance of their fund relative to ours, it certainly financially is worked out to Alaska's benefit to have the public trust and just looking for the best investment, as Marcus described. Marcus, while we have you here, can you tell us a little bit about your sense of the state of

private assets? Because two things, A, you always hear, it's the golden age of private credit. I don't really know what that means. You just hear about private credit all the time. But also with private assets in general, you hear particularly on the private equity side, and maybe you hear it on the VC side too, this sort of paucity of distributions and so forth and this idea that they haven't been coming and questions about returns. Like you sitting here on August 13, 2025, how are you thinking about the past results,

but also opportunities set right now that exists in privates? Yeah, sure. I would say generally I'm quite cautious on privates. I mean, I started my career at Lehman Brothers in 01. And I remember going through LBO training and, you know, you sketch out your typical LBOs, maybe five, six times EBITDA with three, four times leverage and the debt pays down. And by the end of the 2000s buyouts, were eight, nine times EBITDA. And now on average U.S. mid-market buyouts are mid-teens EBITDA multiples. And a lot of money has gone into private.

So we benefited from leaning into privates from, call it, 2010 to 2020. And we just felt kind of in 2021 that it's unlikely that investors are going to get the return premium. And I'm talking about private equity now. So, like, we cut our commitment pace to private equity about in half in end of 2021. And we've kept it around there and ticked it up a little bit, but we're still, like, well below where we were deploying five years ago. we have an allocation to private credit. I think that's something we debate regularly, and

it's maybe 4% of our fund. I think if you look at the unlevered yield on middle market direct lending versus high yield or levered loans versus where it was five years ago, I think maybe you're getting 100 basis point spread today versus several hundred a few years ago. I mean, it's just not even debatable that it's less attractive than it was. And then if you go through a recession cycle, default cycle, I think it'll really get tested. So we're kind of been tapping the brakes on privates the last few years and are pretty cautious on the outlook right now. What have you been doing this year in terms of allocation? Because the word uncertainty seems to come up a lot in conversations nowadays. There's uncertainty over policy and, of course,

uncertainty over the direction of the economy. Are you more cautious or are you, I guess, changing any of your traditional allocations? I think right now is a really tough time to make macro calls. I mean, you've got big budget deficits that aren't going to come down anytime soon. And you probably have Fed funds coming down rapidly in the next year with a new Fed share. So to want to be like underweight equities right now. So like we're kind of like hugging benchmarks on not wanting to be under or overweight equities. But it's just an expensive market.

So if you didn't have that dynamic of. rates coming down, I think you'd want to be really cautious right now. But then given that backdrop, you kind of just have to take the long view, allocate in line with benchmarks. And like I said, on privates, we're definitely tapping the brakes. We deploy every year. And because we cut our pacing, we're still deploying, but just much less. And we're getting more in distributions and contributions on our private equity portfolio, which is unique and kind of a luxury. So even though we're kind of in line with our benchmarks, I sort of root for a dislocation because we're very well positioned from a liquidity standpoint with the reduced private pacing.

Devin, can you talk more about the sort of the legal status of the fund? There was an amendment to the Alaska State Constitution that establish it. I have to imagine that an amendment is like a very difficult, is a very legally secure backing for you. I don't know the Alaska constitutional process, but constitutions are hard to change. But when you think about past your tenure, past all of our tenure, it's like how legally durable is the fund and how hard would it be? Yes, politicians are always going to one year try to give more away to the voters, etc. but how hard is it if enterprising politicians actually wanted to change the legal strength of the fund? It's very difficult to change the structure of the fund in a durable way. Statutorily, it's not that

difficult. That's a simple majority in concurrence of the governor and you can change statutes. The reason it took a constitutional amendment to create the permanent fund is our constitution has a prohibition on dedication of revenues. And so in order to have a dedicated. Revenue Pledge, there had to be an amendment. It was an overwhelming majority. It was just about two-thirds of the people of the state voted for it. Today, the idea of shifting the fund into what I alluded to earlier, a true endowment structure with a 5% draw rather than the noise that I described in the earnings reserve, the potential of a failed draw, the potential of an overdraw, the inflation discussion in the intergenerational compact discussion that we really need a constitutional

amendment to get to that point and it would require two-thirds vote of the legislature and then a vote of the people to ratify it and what quickly happens because we've had in 45 years of people getting a dividend that when they think about the permanent fund, they don't really consider some of those larger issues. They tend to gravitate towards, hey, I got a check last year. What's my check going to be next year? Where's my check? How can my check's not bigger? How can you're not following that statutory formula and I'm not getting $4,000 instead of $1,500? That's the conversation that people are having. And once you dive in, they go, oh, oh, I understand. It actually is funding my child's school or it's actually keeping me safe on the road. It's doing these other things at this point.

And that's where that educational process has been the challenge. We have had decent traction. We have a biannual legislative session, so a two-year session where they meet one year and then they carry forward those bills to the next. This is the second year of that session. We had a number of hearings last session on the concept of a constitutional amendment. And there's, I don't know, maybe it's a 50-50, maybe it's not quite that good shot that will be able to get the legislature to consider something like that. Because you're opening discussion about the seed corn of the state being potentially eaten. That appeals to, I think, the right and the left likes the idea of making sure that you can fund your much needed programs every year. And so there's kind of a balance.

across the two. It's just how do you bridge that dividend question, I think, is the sticky wicket. I don't know. I could see school services versus down payment on a new snowmobile being a tough choice for some Alaskans. But on this note, I realize this isn't necessarily your wheelhouse, but do you notice any like macro economic impacts from the dividend or maybe a broader question would be how does it fit into Alaska's overall culture? You know, around dividend time, do you start to see advertisements for how to spend that extra money? How does it actually impact Alaskans' behavior? Oh, absolutely. You see there will be sales, the airlines that serve Alaska all have permanent fund dividend sales. You have, if you go buy a Costco on the

day that dividends are distributed, you will be waiting in line a long time. There is absolutely an economic impact on the state. And similarly from the transfer that's used for state services, that cycles within the state as well. I mean, Alaska still has a relatively small GDP. It vacillates based on the price of oil, but 40 to 70 billion a year. And so when you compare that to some of the larger states, it's pretty small and fairly concentrated, even though there's diversity from an employment perspective from a revenue perspective, still a lot of concentration in oil, and now investment income from the permanent fund. And so it's interesting to consider if the permanent fund did exist, Alaska, you were talking about a shrinking population. And I think that's driven by a number

of different factors, some of which are economic opportunities, maybe being more comparable to what they are in the continental U.S. where at one point, if you moved to Alaska, you expected to make more than you would make in the continental U.S. I have a guy that I used to work with. He moved to Alaska to work in the Tongass National Forest as a logger. He said that he made enough money in one month to buy a brand new pickup truck. And so you think about today and how many months you have to work to buy a brand new pickup truck and he would be making, you know, let's say it's not of that nice of four-wheel drive pick up, 50,000 he made that month, which wages aren't the same. And of course, logging isn't

happening on that industrial scale in Alaska anymore either. But even a slope worker is not making $50,000 a month. And so when you look at some of the other sectors in the economy, there are bright spots, but certainly there's some struggles as well. Is it another question? I guess it's sort of looking forward. And again, and not necessarily the wheelhouse of the fund per se, but just thinking about the economy of Alaska. When we were there, we heard a couple different things. Like, okay, so you're talking about the oil royalties in general,

like sort of long-term decline. We heard someone talk about, well, maybe like Alaska could one day be a hydrogen hub, that there's a lot of opportunity to harness solar and wind and wave power to turn water into hydrogen. And that could be a new boon for the state of Alaska. I know there's talk maybe one day Alaska could be a important destination for data centers because you could save on cooling costs by just

constructing them in a cold climate, et cetera. When you think about either the state of Alaska or the future of the fund, do you try to think about possible right-tail upside scenarios for what the economy of Alaska could look like 10, 25 years down the road? From the fund's perspective, we tend to just focus on institutional investing. From the policy Alaska perspective, those are obviously all very interesting. interesting things to consider. And when you're thinking about Alaska, and again, it's a huge state, 586,000 square miles. And so you can cut Alaska in half and make Texas the third largest state.

It's huge. Everyone measures Alaska in number of Texas. It's funny. And Texas do that to the other states too. So it's this Russian nesting doll of states lording over, learning their square miles over other states. Anyway, keep going. But it's, maybe we're a little defensive because Alaska is on a different scale on most maps. We're out in the Pacific Ocean and it looks like we're about half the size

of Texas and so perhaps that's what drives that emphasis. But certainly from a resource development perspective and the open skies or, if somebody needed space, there's incredible spaces in Alaska. Obviously

we have a lot of beautiful spaces that are protected for both at the national and state level for future generations, but there's a lot of land that's available for other uses. And so as those ideas come along and they make economic sense, I think that's the critical hurdle for Alaska is that we have historically dreamed big and the states had enough surplus revenue to make attempts at stimulating economic development. and it's proven to be very difficult for a government to force economic development. It has to happen more organically.

And so as people recognize the strengths that Alaska represents, and maybe the distances don't make as big a difference because of satellite communications or other technologies that make the delivery of information seamless from other locations. And like you said, then that with low-cost energy combined with colder climate could result in a data-centered development trend. But I think all of it's a little we're going to wait and see at this point. Be supportive from our perspective, but we're just going to focus on investing money. Marcus, I want to go back to private credit for one second because I found what you were saying really interesting that you've dialed down your exposure since 2020. You know, a lot of big funds out there, a lot of endowments would argue that one of their competitors,

competitive advantages is that they can buy and hold illiquitive investments because they don't necessarily face the same outflow pressures as, say, a mutual fund or someone like that. How do you actually use your, or deploy your, I guess, illiquidity premium? Is that something you think about? And if you're not doing it in private credit, are you sort of letting that competitive advantage go to waste? I don't think of it as like an illiquidity premium that you get. I think it's an illiquity premium that you have to demand. I mean, like in private credit, our allocation has stayed roughly the same. We've just committed less.

And so across, in private equity, too, and across the industry, you see investors that are over their target allocation now. Right. And they may in the future have to reduce down their pacing. And so I feel like if you look at private credit, the illiquidity premium that you're getting without adjusting for defaults has declined in the last five years. And so we've been less enthusiastic about it. And if you adjust for defaults, you may not even be getting a premium in private equity and private credit today. It's like a debate. Like, are you getting an appropriate illiquity premium?

And so I think of it as kind of like keeping our powder dry for a different environment where there is real opportunistic situations that you can demand a very high return premium for locking up your money for 10 years. I don't think it's like, I think it's a market thing that in different markets you may not. even get an illiquidity premium, and we may be close to that now. And in those situations, liquidity should be valued. And I think liquidity should be valued now, whereas 10 years ago, it was a real compelling environment for harvesting an illiquity premium. Yeah, you kind of touched on this earlier, the idea that you're hoping for some sort of dislocation to take advantage of, which we're journalists. We like it when stuff happens, and we have a lot to talk and write about. But what dislocation are you sort of envisioning here?

Well, it depends on the asset class. I mean, in fixed income, for example, we've had very tight spreads for a very long time. And our fixed income team is kind of just trying to stay out of trouble. If you look at a month like April, the first two days the market was down over 10%. Most pension funds and endowments rebalance monthly because our benchmarks rebalance monthly, we've decided that we just are going to ignore that. And so we like bought the dip aggressively. And then it was so, it was so brief that it's a blip in the performance. But I mean, I think that there could be trouble lurking in private equity. There could be trouble lurking

commercial real estate. I don't know on private credit. I'm not like making a call that it's headed for disaster. I just don't think you're getting a real compelling premium for locking up your money. But in some of those areas that could get dislocated, like private equity or commercial real estate, like we want to be the buyer with deep pockets in a dislocation. And when you look around the industry, people that are over allocated to private equity, I think we'll find that they don't have that luxury. And like, we want to have that luxury, you know, and a cycle will come. It may not be, it probably will not be next year with rates coming down. Or maybe it will be because no one thinks it will. I have a real short question, then a real question. The short

question is, if there's some manager, alt manager of any sort, do they have to fly to Juneau and meet you or do you go to the lower 48? Or how does that, how do those introductions work? Yeah, when I started here about 10 years ago, we were really building out private markets and we had this idea that we should kind of haze managers. And not only should they come out, they should come out in January. And do a glacier cruise with high, high waves. When we started trying to get into the real premier venture funds and stuff, we realized that was not a good model. So we've, we've been using our Alaska Air miles. Okay, real question, this is the last thing for me. So it occurred to me, and I bring this up because of the mention of logging and your mention of

oil earlier. Famously, David Swinton at Yale made timber allocation a core part of his portfolio. And there's all this thinking that like natural resource investments like that could play a good diversifying role, that they were sort of acyclical in certain ways, and they're very natural in the endowment setting. You're in a resource extraction state, and so I'm curious if you have any thoughts today, setting aside the point you made about oil and maybe there was not enough capital exposed to it in 2021, whether you have any thoughts about in the modern era, do resource industries, can they still play that role in a long-term portfolio where they deliver returns that aren't necessarily in line with what, like, quote, risky assets are doing in a given year?

Oh, I think so. I think commodities and resources have always been an interesting area to look. But, like, one of my favorite investment quotes is Barton Biggs quote that there's no investment idea that's so good that too much capital can't destroy it or ruin it for everyone. And that was definitely the case. Like, once David Swenson publicly did anything, usually a lot of people followed him. And so Timber kind of got uninteresting. But, I mean, I think resource.

development, mining, are areas that have been like underinvested in the United States, at least the last decade. So, I mean, that's a, that's a real interesting area for some of our private market managers. I have one more question, which is I am looking at the White House website right now. I'm looking at a page that says a plan for establishing a United States sovereign wealth fund. And as we discussed in the beginning, who knows if that's actually going to happen, but certainly there are some discussions around it. If the U.S. at a federal level were to establish, a sovereign wealth fund, an SWF. What advice would you have for something at that level? Well, I mean, I think setting up something with like clear rules-based investment policy

makes a lot of sense. I mean, anytime you're investing public funds, like one of the most important things to do is to get the trust of the citizenry, your stakeholders, in how you're making investment decisions, how you do due diligence, how you build a portfolio. So I would encourage them to think about the fact that it will likely live beyond the current administration to future administrations and just have real thoughtful governance, investment committee process, things like that. I don't know. Do you have anything to have it? Those were my thoughts as well. I might layer on. It's when the idea initially came out just from a personal perspective, I had a little bit of hard time understanding why we would be doing that

when we're in a recurring fiscal deficit situation, the reason that most sovereign wealth funds exist, or maybe all, is that there's windfall revenue that shows up that people, like I said earlier, have a vision of providing for their residents in perpetuity from a one-time revenue source. And so if there were something along that line that showed up at the national level, it might make some sense. but you would, I think, hope that you had a balanced budget. You would have some methodology for why you would be pursuing, creating a sovereign wealth fund despite having a budget that was an imbalance. Yeah, it definitely seems, though, all around the world,

if you look at sovereign wealth funds, they frequently associated with oil, oil, and frequently associated with economies that are too small for the money to be deployed in a short period of time without creating a lot of waste or inflation. Anyway, fascinating conversation. Devin and Marcus. Thank you both so much for coming on odd lots.

I think a conversation, a lot of people are very curious about, and I really appreciate you both taking your time. Yeah, thank you. Thanks. I forgot to mention I saw a bear on the way to work this morning. Wait, Grizzly or a black bear? Just a black bear. We have those in Connecticut.

Exactly. I did see one yesterday. We're on my mom's roof, which is pretty unusual. That's unusual. Tracy, I love that. conversation. First of all, I'm glad we did that after, after we had returned from Alaska, because I just felt like understanding just what a distinct economy is, Alaska is, and the specific needs of the Alaskan economy, et cetera, and the sort of weirdness and the exposure

to booms and busts and whether an economy that far-flung can even, like, support itself, that gives me a deeper understanding of, like, why a state would have the equivalent of a sovereign wealth fund, or why I would have the equivalent of, like, a small, like, little universal basic income. Yeah. Well, on that note, I did think it was interesting when we asked about what would their advice be for a federal sovereign wealth fund. And they said something rules-based where you stick to a certain payout formula in order to insulate the fund from political whims, which change on a sort of midterm basis, I suppose. I thought that was really interesting. And I also reminded me actually of the conversations we had with Claudia Somm, about.

about the SOM rule and the idea that, like, one of the reasons you want these rules-based economic formulas is in order to her stimulus formulas is to insulate them from political risk. Yeah. I thought, I mean, it sounds like being a portfolio manager at the Alaska fund would be, like, a nice job, I think. Oh, yeah. But would you, but the Alaska part, would you take it? I haven't done an Alaskan winter. So I highly suspect my opinions of living in the state would. changed drastically if I was there in January versus August.

Can I say something that is not meant to be insulting to anyone who lives there or any of the wonderful guests that we've had on? It's certainly not meant to be insulting to anyone who lives in Alaska. There are a lot of bars in Anchorage. There are a lot of dive bars. I feel like there's a reason. I do not. Yes, that too.

I suspect that there is a link between all those bars in like eight months where the sun comes up like 11 a.m. and goes down at 4 p. It's a long winter. You got to go somewhere. You got to do something. That seems like pretty tough on the human condition. Two other things I thought were interesting. So on that point about whether a national sovereign wealth fund makes sense. I do agree with like this basic idea. Like where it's most logical is if you have this big windfall of money and you can't put it all into the economy right now because you lack the capacity, right? You create inflation or whatever. I think that we don't have anything like that condition. We don't have some big windfall of money. etc. And then the other thing too is I like getting their takeout just asset markets right now

and private credit and it's just that, yeah, this is not as, maybe it's not the golden age right now. All right. Shall we leave it there? Let's leave it there. This has been another episode of the Oddlots podcast. I'm Tracy Allaway. You can follow me at Tracy Alleyway. And I'm Joe Wisenthall. You can follow me at the stalwart. You can follow our producers, Kerman Roderigis, at Kermann, Dashobin at Dashbot and Kale Brooks and Kail Brooks. For more odd lots content, go to Bloomberg.com slash oddlots where we have a daily newsletter and all of our episodes. And you could chat about all of these topics 24-7 in our Discord. Discord.g.g slash oddlots.

And if you enjoy oddlots, if you like it when we travel to far-flung states, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes, absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts. follow the instructions there. Thanks for listening.