Alaska Permanent Fund Plans to Bring Fixed Income 100% In-House
Posted on 05/31/2022
The Alaska Permanent Fund Corporation (APFC) is undertaking a “fixed income transition initiative”. Larger sovereign funds often move a large portion or all of their fixed income management in-house as they can scale and hire staff. Examples of asset owners who maintain fixed income internally include Norway Government Pension Fund Global (managed by Norges Bank Investment Management) and the California Public Employees Retirement System (CalPERS).
APFC plans to terminate all existing external fixed income managers, bring all of those assets in-house, change its custom benchmark to a more conservative one, and hire additional analysts near-term and portfolio managers long-term. APFC expects fee savings of US$ 7,800,000, according to board documents. APFC will have more control over the fixed income portfolio. APFC believes that fixed income returns are the bedrock of the overall APFC portfolio and that riskier asset classes (emerging market debt, private credit, low-grade high-yield debt) can be managed by APFC’s private markets group instead. APFC realized that the vast majority (75%-80%) of high yield managers fail to beat the assigned benchmark.
APFC will close its dedicated allocation to emerging market debt. APFC feels they are not getting paid for the volatility of their emerging market debt allocation and can save US$ 4 million in fees by divesting from their global fund managers.
