The POMV draw and PFD would be significantly larger under a relatively well-known and much lower-cost alternative investment approach. The Anchorage Daily News and Alaskans should pay attention.
A quick follow up. The rigor of your analysis of lost earnings is impressive. Take the last two years of S&P returns of over 20%. Assuming the fund was 100% invested in the S&P. A layman's simple way of judging earnings, for example, would be to take a starting fund balance of $80 billion and multiply it by 20%. This equals a $16 billion gain which would increase the fund balance from $80 billion to $96 billion at the end of the first year. The second year would take the $96 billion fund balance and multiply it by another 20% return which would be $19 billion in earnings. This added to the $96 billion balance would bring the fund balance to $115 billion at the end of 2024. This approach, although simplistic, approximates your findings. How can a current balance of $83 billion in any way be considered great performance when it should be $115 billion? That's $32 billion ($115 billion minus $83 billion) in lost earnings in two years. Foregoing gains of this magnitude is crazy. Are we foregoing $32 billion in earnings to protect from a downslide? Even a 10% return, as performed by the S&P over the long term, would increase $80 billion by $8 billion a year. Lost fund earnings and lost fair share equals fiscal crisis.
Your analysis of the PF is excellent and much needed. The pathetic return of the fund when compared to the passively managed S&P could be considered outrageous. To think the fund could be up to $120 billion, as you have shown, while still less than $85 billion suggests significant mismanagement. I would suggest it is the almost insane fund asset allocation that is the problem. I have a spreadsheet showing the asset allocation of the fund using their data to illustrate the problem. Is there someway I can get the spreadsheet to you? To briefly summarize the fund has 8 asset classes including cash. A widely recognized commonly held principle for a retirement account is to allocate roughly 60% of your portfolio in stocks and 40% in bonds to generate enough growth to support a 4% withdrawal. Compare this to the 8 asset classes in the fund: 1) Stocks; 2) Bonds; 3) Private Equity; 4) Real Estate; 5) Private Income and Infrastructure; 6) Absolute Return; 7) Tactical Opportunities; and 8) Cash. Stocks comprise 32% of the fund total portfolio and bonds comprise 20%. When combined they account for 52% of the total portfolio. The six other asset classes when combined account for 48% of the total portfolio. The six other asset classes except for Real Estate and Cash are dubious at best yet they make up 35% of the total portfolio. With Stocks only comprising 32% of the total portfolio there is no way a robust 20% plus two year stock market gain, as recently occurred, can overcome the drag of the other dubious asset classes that make up 35% of the total portfolio because the Stock asset class is only 32% of the total portfolio. The dubious asset classes, Private Equity, Private Income and Infrastructure, Absolute Return and Tactical Opportunities are a greater percentage of the total fund portfolio than Stocks. No wonder. The only way your $120 billion projection could work is if it assumed the fund had a single stock asset class. And therein lies the problem. The track record of the S&P is proven and has returned approximately 10% since inception. There are overwhelming numbers of articles that prove passively managed funds like the S&P outperform actively managed funds or other asset classes over time. So who invented, if I may, these other dubious bizarre asset classes, why do we have them, what good are they, why do they comprise such a significant percentage of the fund and what fees are paid to manage these? I would speculate that high power investors are luring fund managers with dreams of big returns for a high price. Fund managers go along because hey, money can't buy better advice and its not their fault for a failed return. So instead of staying with investments with a proven record like the S&P we are led astray. Follow Warren Buffet's 90/10 investment plan he has for his heirs. 90% of his portfolio will be in passively managed S&P and 10% in bonds. Classic can't see the forest because of the trees. This is ripe for careful analysis and a management board that has qualified, experienced personnel.
Excellent comment, Larry. Thanks for taking the time to write and post it. To provide a broader audience, I am posting a link to it also in the comments section to where the column appears on the Alaska Landmine.
A quick follow up. The rigor of your analysis of lost earnings is impressive. Take the last two years of S&P returns of over 20%. Assuming the fund was 100% invested in the S&P. A layman's simple way of judging earnings, for example, would be to take a starting fund balance of $80 billion and multiply it by 20%. This equals a $16 billion gain which would increase the fund balance from $80 billion to $96 billion at the end of the first year. The second year would take the $96 billion fund balance and multiply it by another 20% return which would be $19 billion in earnings. This added to the $96 billion balance would bring the fund balance to $115 billion at the end of 2024. This approach, although simplistic, approximates your findings. How can a current balance of $83 billion in any way be considered great performance when it should be $115 billion? That's $32 billion ($115 billion minus $83 billion) in lost earnings in two years. Foregoing gains of this magnitude is crazy. Are we foregoing $32 billion in earnings to protect from a downslide? Even a 10% return, as performed by the S&P over the long term, would increase $80 billion by $8 billion a year. Lost fund earnings and lost fair share equals fiscal crisis.
Your analysis of the PF is excellent and much needed. The pathetic return of the fund when compared to the passively managed S&P could be considered outrageous. To think the fund could be up to $120 billion, as you have shown, while still less than $85 billion suggests significant mismanagement. I would suggest it is the almost insane fund asset allocation that is the problem. I have a spreadsheet showing the asset allocation of the fund using their data to illustrate the problem. Is there someway I can get the spreadsheet to you? To briefly summarize the fund has 8 asset classes including cash. A widely recognized commonly held principle for a retirement account is to allocate roughly 60% of your portfolio in stocks and 40% in bonds to generate enough growth to support a 4% withdrawal. Compare this to the 8 asset classes in the fund: 1) Stocks; 2) Bonds; 3) Private Equity; 4) Real Estate; 5) Private Income and Infrastructure; 6) Absolute Return; 7) Tactical Opportunities; and 8) Cash. Stocks comprise 32% of the fund total portfolio and bonds comprise 20%. When combined they account for 52% of the total portfolio. The six other asset classes when combined account for 48% of the total portfolio. The six other asset classes except for Real Estate and Cash are dubious at best yet they make up 35% of the total portfolio. With Stocks only comprising 32% of the total portfolio there is no way a robust 20% plus two year stock market gain, as recently occurred, can overcome the drag of the other dubious asset classes that make up 35% of the total portfolio because the Stock asset class is only 32% of the total portfolio. The dubious asset classes, Private Equity, Private Income and Infrastructure, Absolute Return and Tactical Opportunities are a greater percentage of the total fund portfolio than Stocks. No wonder. The only way your $120 billion projection could work is if it assumed the fund had a single stock asset class. And therein lies the problem. The track record of the S&P is proven and has returned approximately 10% since inception. There are overwhelming numbers of articles that prove passively managed funds like the S&P outperform actively managed funds or other asset classes over time. So who invented, if I may, these other dubious bizarre asset classes, why do we have them, what good are they, why do they comprise such a significant percentage of the fund and what fees are paid to manage these? I would speculate that high power investors are luring fund managers with dreams of big returns for a high price. Fund managers go along because hey, money can't buy better advice and its not their fault for a failed return. So instead of staying with investments with a proven record like the S&P we are led astray. Follow Warren Buffet's 90/10 investment plan he has for his heirs. 90% of his portfolio will be in passively managed S&P and 10% in bonds. Classic can't see the forest because of the trees. This is ripe for careful analysis and a management board that has qualified, experienced personnel.
Excellent comment, Larry. Thanks for taking the time to write and post it. To provide a broader audience, I am posting a link to it also in the comments section to where the column appears on the Alaska Landmine.