As some readers may be aware, monthly as the data becomes available, we post charts on our Facebook, Twitter, and LinkedIn pages and through them on the Alaskans for Sustainable Budgets website, which evaluate the current status of the Permanent Fund (Fund) corpus and earnings reserve, as well as the returns earned by the Fund and other matters as they become relevant.

Given the current issues surrounding the Fund and its Board, we are featuring this month’s update on these pages as our Chart of the Week now that the Permanent Fund Corporation (PFC) has published the Fund’s final audited financials for Fiscal Year (FY) 2024 and the results from the first month of FY 2025.

This month, our charts focus on three areas: Permanent Fund returns, the status of the Earnings Reserve Account (ERA), and a new category, Management Fees.

Returns. As discussed in previous columns, the PFC publishes the Fund’s overall returns monthly on a running 1-, 3-, and 5-year average basis. They then compare those overall returns against three benchmarks – a “Passive Index Benchmark,” to reflect the “value” that the PFC has added through its active management of the Fund; a “Performance Benchmark,” to reflect the PFC’s performance relative to what it considers its peer group; and the “Total Fund Return Objective 5%,” to reflect the PFC’s performance against its long-term investment goal of a real (after inflation) return of 5% on its assets.

The latter benchmark also provides a measure of the PFC’s performance in producing returns sufficient to cover the 5% annual percent of market value (POMV) draw used by the Legislature to fund Permanent Fund Dividends (PFDs) and help pay for government spending.

Compared to the same measure over the prior seven years, here is the Fund’s performance against the three benchmarks on a 5-year rolling average for both FY 2024 and the first month of FY 2025. A positive amount indicates that the Fund’s performance exceeded the benchmark return by the amount stated; a negative amount indicates that the Fund’s performance fell short of the benchmark return by the amount stated.

While the Fund’s performance on a rolling 5-year average basis for FY 2024 and the first month of FY 2025 exceeds both the PFC’s Passive Index and Performance Benchmarks, it falls short of the Total Return Objective of a real rate of return of 5%. Compared to the objective of a 5% real rate of return, the Fund has earned over the 5-year rolling average period ending in FY 2024 a real rate of return of only 4.07%, a shortfall of 0.93% or nearly 20% against its objective.

While a slight improvement over the FY 2024 results, the Fund’s rolling 5-year average return ending the first month of FY 2025 (July 2024) still falls short of the PFC’s Total Return Objective. The shortfall has improved to 0.71%, based on a realized rolling average real rate of return of 4.29%, but that still represents a 14% shortfall against the objective of a real 5% return.

The Fund’s performance against the three benchmarks, calculated on a 3-year rolling average basis for FY 2024 and the first month of FY 2025, is directionally similar.

While the Fund’s performance on a rolling 3-year average basis for both FY 2024 and the first month of FY 2025 exceeds both its Passive Index and Performance Benchmarks, it falls significantly short of the Total Return Objective of a real return of 5%. Compared to the objective of a 5% real rate of return, the Fund has earned over the three years ending in FY 2024 a rolling average real rate of return of negative 1.07%, for a shortfall of 6.07% percentage points or nearly 121% against its objective.

While the Fund’s rolling 3-year average return through the first month of FY 2025 reflects a slight improvement, the results nevertheless remain seriously deficient compared to the PFC’s Total Return Objective. While the Fund has improved to a negative 0.89% rolling average real rate of return, that still represents a 118% shortfall against the objective of a real 5% return.

Comparing the Fund’s performance on a 1-year rolling average basis against those for the prior seven years helps explain the cause of the Fund’s deficient performance compared to its Total Return Objective on a 5- and 3-year rolling average basis.

While the Fund is underwater against all three benchmarks on a 1-year rolling average basis for both FY 2023 and 2024, as well as the 1-year rolling average so far for FY 2025, its performance against the Passive Index and Performance Benchmarks was relatively strong for the other years included in the 3- and 5-year rolling averages. As a result, the Fund’s average return against these benchmarks is positive overall.

However, the Fund’s 1-year rolling average performance against the Total Return Objective benchmark has remained underwater in five of the last six years. While the Fund’s performance against that benchmark for FY 2021 – the exception to that string – was strong, that single positive year is effectively drowned out by materially subpar returns in the remaining years.

On the positive side, while still underwater, the 1-year rolling average results compared to the Total Return Objective benchmark for FY 2024 and, thus far, for FY 2025 are significantly less deficient than for most of the prior years during the period. But, while the deficits are smaller, the results are still below the benchmark. In other words, while the more recent returns are less deficient, they are still not at the levels needed to cover the POMV draw.

Earnings Reserve Account. As we have discussed in previous columns, recently, there has been significant focus in the press and elsewhere on the amount and operation of the Fund’s ERA. Indeed, citing concerns over both, the PFC Board has recommended that the Fund’s corpus and ERA be combined into a single account.

Taken at face value, the Financial Statements published by the PFC for the year ending FY 2024 and thus far for the first month of FY 2025 tend to support the concern.

The current (as of July 2025) overall balance of the ERA ($6.1 billion), as reported by the PFC, seems low compared to prior years. At approximately $150 million, the level of the Realized Uncommitted portion, as reported by the PFC, looks especially low.

But this snapshot is significantly misleading. As we explained in a previous column, the PFC’s look doesn’t give any weight to the over $5 billion in inflation-proofing prepayments remaining in the corpus, all of which is available to offset future charges against the ERA. And, as we’ve also explained in greater detail in a previous column, the amounts also reflect an accrual for the full amount of the FY 2026 POMV payment, not due until the next fiscal year, while only including the amount of the current year (FY 2025) earnings received to date.

Including an accrual for a significant charge a full year ahead while only including a portion of current-year income creates a significantly distorted picture. It’s the same as a business including an accrual on its income statement for all of its significant expenses for the current year and the following year while only including the portion of its revenues received to date in the current year. Of course, the income statement is going to look depleted. 

To create a more balanced look, we publish a more inclusive analysis each month, including the remaining balance of the inflation-proofing prepayment and adjusting for the bias created by the mismatch between the cash basis look at current year earnings but a year ahead accrual for the POMV charge. This is the current outlook, as adjusted:

Adjusting for the $5.2 billion remaining in prepaid inflation proofing, restating the level of realized earnings to the full-year projection included in the PFC’s July 2024 “History and Projections” Report, and reversing the advance accrual for next year’s (FY 2026) POMV draw results in a projected FY 2025 year-end uncommitted realized earnings balance of $13.66 billion, well in safe territory.

This is not to say there may be no problems ahead. However, any issues aren’t created by the Fund’s two-account nature; if they develop, they will result from the Fund’s ongoing failure to achieve its long-term Total Return Objective of 5% over CPI.

Using the above “waterfall” chart for the current year as a base, we also look forward at future ERA balances using the projections of the various components included in the PFC’s most recent “History and Projections” report. Here is the current outlook:

By drawing down the prepayment balance already in the Permanent Fund corpus to cover the annual inflation-proofing payments due over the next few years, the balance of the ERA (the blue lines) builds until roughly FY 2029, when projected earnings levels below the level of the POMV draw again start slowly softening the balance. 

If that occurs, however, the answer is not to combine the two accounts, exposing the corpus to a drawdown. Instead, the appropriate response is to reduce the POMV draw to the level supported by the earnings.

Management fees. Some recently have suggested that the level of management and performance fees paid by the PFC is another potential issue that should be evaluated. The concern is that the fee level is excessive for the size of the Fund and the returns it generates.

The PFC publishes a quarterly report of the management and performance fees it is paying. Unlike the PFC’s analysis of its returns, however, the report does not include any benchmarks against which the level of the fees can be compared.

To provide a frame of reference, using the PFC’s quarterly report as a base, we have developed a chart that compares the level of fees paid by the PFC to those reported for a similar purpose by Norges Bank Investment Management (Norges Bank), the corporation charged with the management of Norway’s Government Pension Fund – Global (GPFG), in its annual reports. While the size of the two funds and the amounts paid by each are significantly different, for comparability, both the PFC and Norges Bank report the amounts as a percentage of assets under management.

The following charts the period from when the PFC started separately reporting its fees to the most recent available. While the reports are not strictly comparable – among other things, the amounts reported by the PFC are on a fiscal year basis (ending in June of each year), while the amounts stated by Norges Bank are on a calendar year basis (ending in December of each year) – the differences generally should wash out over time. In any event, at this point, we are not using the numbers as a direct benchmark but merely to provide a rule of thumb for considering the reasonableness of the fees paid by the PFC.

While the level of fees paid by the PFC as a percent of assets appear to start lower than those paid by Norges Bank, they quickly rise (perhaps as the reporting improves) over the period first to a level roughly equal to and then, by the end of the period, roughly double those incurred by Norges Bank.

There may be reasonable explanations for the differences. But the amounts involved are not small and there is some basis for concern. In FY 2024, for example, the management and profit sharing/performance fees paid by the PFC totaled nearly $800 million, or almost 1% of funds under management, for a year in which the Fund’s overall return fell below all three PFC benchmarks.

Had the fees been half that amount, more in line with the level paid by Norges Bank, instead of a .07% differential, the Fund’s overall return would have been within roughly 0.02% percentage points of meeting its Total Return Objective of 5% over inflation.

Reflecting their significance, we will continue to monitor the level of these fees in the future as part of our regular chart series and consider whether any lessons from Norges Bank or other entities can be applied to reduce or, at least, better explain the costs.

Given the Fund’s ongoing, deficient returns, particularly against the PFC’s 5% real rate of return benchmark, managing its costs should be as great a priority for the PFC as improving its investment results.

Brad Keithley is the Managing Director of Alaskans for Sustainable Budgets, a project focused on developing and advocating for economically robust and durable state fiscal policies. You can follow the work of the project on its website, at @AK4SB on Twitter, on its Facebook page or by subscribing to its weekly podcast on Substack.