Capital Pool Alaska’s sovereign wealth fund’s secret sauce is a classic

Allen Waldrop, the deputy chief investment officer of private markets at Alaska’s $83 billion sovereign wealth fund, doesn’t think there’s any secret formula to the portfolio’s strong long-term returns.

Instead, it’s the fund’s long-standing tenure in the private markets and steady pacing of GP commitments that led to its consistent outperformance of its multi-year benchmarks, Waldrop told me. He oversees Alaska Permanent Fund’s PE, private credit, infrastructure and real estate programs.

Despite a years-long dry spell in exits and a slowdown in fund distributions and capital calls in the broader buyout market, Alaska’s PE portfolio has been cash flow positive for the last five fiscal years. For the five- and 10-year periods ending Dec. 31, 2024, the fund’s PE portfolio outperformed Cambridge Associates’ PE index and APF’s own internal benchmarks.

“Liquidity hasn’t been a major concern for us,” Waldrop said. “When you look at what we’ve done in the asset class over 20 years, our pacing moves up incrementally and moves down incrementally, but we don’t double and triple it or slash it in half based on where our allocation is.”

Still, while APFC’s PE portfolio is strong, it isn’t insulated from the challenges in the global PE market, which now harbors nearly $2.8 trillion in aging PE assets. Last year, the PE portfolio underperformed its one-year benchmark by 50% for FY 2024, leaving it slightly over-allocated to private equity at 19%, three percentage points above its target allocation.

To remedy that, APFC reconsidered its portfolio shape: Last year, the board of trustees voted to increase the portfolio’s allocation target to PE, real estate and private income and decrease exposure to public equities, tactical opportunities and cash for FY 2025. The idea was to have it better reflect current market conditions, including the slower pace of exits.

“You could say we were under-allocated and then over-allocated, but the reality is we didn’t do much different,” he said. “We slowed pacing a bit. We were more mindful of co-investments; We took liquidity opportunities through [continuation vehicles] when presented to us.”

As the fund moves through FY 2025, it plans to deploy $1.5 billion in PE investments, $1.07 billion of which it has already put into the ground through a combination of co-investments and fund commitments across sectors like information technology, healthcare and financial services.

For Waldrop, putting capital to work in the current environment means finding creative, uncharted ways to invest in hot sectors, like AI, without being a part of the pile-on.

“AI is a complete revolution, but the impacts are much broader than ‘who’s got the next best new model,’” Waldrop said. “It’s going to be a game-changer for a lot of industries, so you don’t have to just find the next hot startup to benefit from it.”