A recent conversation reminded us of the need to finish an analysis we were challenged to undertake earlier this year concerning Permanent Fund balances and returns.

The Alaska Permanent Fund Corporation (APFC) publishes both the Permanent Fund balances and the returns it achieves monthly in two reports. The balances are published monthly as part of the APFC’s “Financial Statements” report. The APFC publishes information on the returns it achieves each month in its “Monthly Performance Report.” As of the time we are writing this week’s column, the most recent Financial Statements report is for the month ending March 31, 2026. The most recent Performance Report is for the month ending February 28, 2026.

We capture the essence of the top-line information in the APFC’s Performance Report monthly in the following chart, which compares the APFC’s current performance to its past performance dating back to Fiscal Year (FY) 2012, the earliest we have found published reports comparing its actual performance to various benchmarks in its current format. Here is the chart, updated for APFC’s latest report.

The chart follows the returns reported by the APFC, compared to other returns, for various periods: by year from FY2012, averaged over the most recent 10-year period, for the current fiscal year to date, and then, based on the approach in the APFC’s Performance Report, for the most recent rolling 5-, 3-, and 12-month periods. The other returns shown on the chart are those realized for the same periods by the Vanguard S&P 500 Exchange-Traded Fund (ETF), as reported by the APFC as its “Total Fund Return Objective” and, currently, the APFC’s Performance and Passive Index Benchmarks. 

The APFC’s latest monthly performance is consistent with the recent past. While the APFC’s returns exceed its “Total Fund Return Objective” on both a 3- and 1-year rolling average, they continue to trail that benchmark when compared to the rolling 5-year average. The comparison is the reverse when focusing on the APFC’s Passive Index Benchmark. There, the APFC’s returns trail the benchmark on a rolling 3- and 1-year basis, but slightly exceed it on a rolling 5-year basis.

Compared with those mixed results, however, the APFC’s returns consistently trail those of the Vanguard S&P 500 ETF at every level: 5-, 3-, and 1-year rolling averages, as well as on a 10-year average and year-to-date. In fact, the APFC’s returns trail those realized by the Vanguard S&P 500 ETF in every one of the 14 years covered by the chart, as well as the current year-to-date, with the single exception of the COVID-affected year of FY2022.

We also use the results from this chart and the Permanent Fund balance reported on the APFC’s Financial Statements monthly to update a second chart, which compares the balance of the Permanent Fund and the level of annual percent of market value (POMV) draws it supports, using the APFC returns, to the balances and level of POMV draw which would have been achieved if the Permanent Fund had been invested instead in the Vanguard S&P 500 ETF starting from the effective date of 2018’s Senate Bill 26, the bill establishing the POMV draw.

As demonstrated in the chart, consistent with the Vanguard S&P 500 ETF’s significantly higher returns over the period, both the Permanent Fund balance and the level of POMV draws are significantly greater under the S&P 500 ETF alternative.

The analysis we were challenged to undertake in the conversation earlier this year was to extend that chart backward to periods when the S&P 500 was not doing as well, such as during the Dot-Com Crash of 2001 – 2002 and the Great Recession of 2007 – 08. The purpose of such an analysis would be to analyze the relative performances of the APFC and S&P 500 investment approaches during such periods and the years following.  

While we did something along those lines in a previous column, we did not include the impact of the annual 5% draws. We also did not begin the analysis with the Permanent Fund’s actual balance at the start of the period. Instead, for simplicity, we used $1 billion as the starting point for the hypothetical.

The following chart reflects both the impact of hypothetical annual 5% draws and the use of the actual year-end FY1993 balance ($15.465 billion) as the starting point for the comparison. As we noted in the previous column, to extend the analysis farther back than 2010, the launch date of the Vanguard S&P 500 ETF, we have used instead the returns generated over the period by State Street Investment Management Company’s Standard & Poor’s Depositary Receipts (SPDR) S&P 500 ETF Trust (NYSEARCA: SPY). We use SPY as the proxy for the S&P 500 ETF alternative because it is the oldest and thus has the most extensive history of the S&P 500 ETFs.

Here’s the result.

The results are somewhat misleading because, before FY2021, the APFC did not include the management and other fees it incurred in its investment approach in calculating the rates of return it reported. The failure to include those fees results in an overstatement of the returns the APFC actually achieved over the period.

Subject to that limitation, however, as anticipated by the person who suggested we make the longer comparison, it appears that both the end-of-year balance and the amount of the hypothetical 5% draws are significantly more variable over the full period when using an S&P 500 ETF as the investment approach than they are for the APFC.

While the end-of-year balances using the S&P 500 ETF approach are larger over the first 14 years of the period (FY1994 – 2007), and become so again during the most recent seven years of the period (FY2020 – 2026), the end-of-year balances actually realized by the APFC are larger in the intervening 10 years (FY2009 – 2019).

Because the annual 5% POMV draws are based on the rolling 5-year average balances, they follow a similar pattern.

While the annual 5% POMV draws are larger using an S&P 500 ETF over the first 11 years of the period (FY2000 – 2010), and again during the most recent three years of the period (FY2024 – 2026), the annual 5% POMV draws are larger using the actual APFC balances in the intervening 11 years (FY2012 – 2022).

Notably, despite significantly higher volatility and higher ending balances under the S&P 500 ETF approach, the total POMV draws over the full 27-year period are remarkably similar. The total amount of the 5% POMV draws over the entire 27-year period, calculated using the S&P 500 ETF approach, is $61.95 billion, or an average of $2.29 billion per year. The total amount of the 5% POMV draws over the period, calculated using the actual APFC balances, is slightly less, $60.50 billion, or an annual average of $2.24 billion. 

On the surface, this suggests that much of the additional return generated by the S&P 500 ETF approach is offset by its greater variability over the period.

However, that reflects only a snapshot in time, based on the specific sequence of returns over this particular 27-year period. Given that the current balances from the S&P 500 ETF approach are rising significantly faster than those under the APFC approach, the gap is likely to widen further in favor of the S&P 500 ETF approach over the next several years, depending on the degree of continued strength in market returns.

The person who urged us to make the longer comparison also urged us to focus on the relative drawdown risk of the two approaches over the longer period. According to Investopedia, “a drawdown is typically quoted as the percentage difference between the peak of an investment and its following trough.”

There is no doubt that, based on the relative performance of the two approaches over the full period, the S&P 500 ETF approach carries a greater drawdown risk than the APFC. Over the ten years from FY2000 – 2009, the balance under the S&P 500 ETF approach fell from $55.24 billion to $24.43 billion, a decline of nearly 45%. During the same period, the balance under the APFC approach actually grew by nearly 23% from $32.13 billion to $39.41 billion. Even at its lowest point over that same period (FY2003), the APFC approach declined from its FY2000 peak by only 14%.

But the S&P 500 ETF approach has also shown significant resilience over the period, rebounding from its FY2009 low, supported by a prolonged period of strong post-crisis market returns, to match the balance of the much slower-growing APFC approach by FY2019, and continuing to grow thereafter at an average annual rate of 15.45%. On the other hand, the APFC approach has only grown at an average annual rate of 8.7% over the same post-FY2019 period. By emphasizing lower volatility over return, it has captured a materially lower share of recent market growth.

The result is that, under this analysis, while the current balance of the APFC is approximately $82.60 billion, the balance using the S&P 500 ETF approach is $126.03 billion, more than 50% greater.

Some focus more on comparing the POMV draw levels. Again, there is no doubt that the S&P 500 ETF approach is much more variable. Using the S&P 500 ETF approach, the hypothetical POMV draw hit a high of $2.37 billion in FY2004, before sliding to $1.60 billion in both FY 2014 and 2015 as the effect of the post-FY2009 balance drawdowns took hold. 

Conversely, during the same period, the hypothetical POMV draw levels under the APFC approach slowly grew from $1.52 billion (FY2004) to $2.38 billion (FY2015). 

Since then, however, the hypothetical POMV draw levels under the S&P 500 ETF approach have grown at an average annual rate of nearly 15%, matching the APFC’s POMV draw level by FY2023, and, by FY2026, exceeding it by approximately $600 million (or nearly 17%).

Given the current debate over POMV draw levels, we have also run the numbers for the full period using a hypothetical 4.5% draw rate. Here is the result.

While the timeframes and differences shift slightly, the overall result is the same. While over the period the APFC’s investment approach produces smoother, more predictable growth in both Permanent Fund balances and hypothetical POMV draws, by much better capturing the benefits of strong market growth, the S&P 500 ETF-based approach produces higher – and potentially, much higher – growth in both over the intermediate and longer-term.

While the results shown here reflect a single realized path of market returns, they do capture the actual historical experience over the period and allow for some generalizations. While the S&P 500 ETF approach produces higher balances and POMV draws in many long-run scenarios, it also materially increases the probability of large interim losses. For its part, the APFC approach reduces the likelihood of severe drawdowns but at the cost of significantly lower expected long-term growth.

Ultimately, the comparison is not between higher and lower returns, but between higher returns with greater variability and more moderate returns with less variability. Over the period, the S&P 500 ETF approach generates larger balances and payouts, but only by accepting a materially higher probability of large interim losses and more volatile outcomes. The APFC approach delivers smoother, more predictable results, but with materially lower expected growth. The choice between them turns on a fundamental policy question: whether to prioritize maximizing long-term returns or reducing the risk of interim drawdowns.

Reasonable people can differ on that choice. We generally place greater weight on the larger balances and POMV levels associated with the S&P 500 ETF approach, given their long-term impact in reducing required tax levels (including cuts to the Permanent Fund Dividend). Others will place greater weight on the lower variability provided by the APFC’s more diversified strategy.

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.