Lawmakers need to act to save Permanent Fund

This is a public appeal to Gov. Sarah Palin and members of the state Legislature. Please consider these 13 reasons you must investigate the not-so-Permanent Fund.

1. Losing more than $12 billion in a one year after being warned 30 times by myself regarding errors in investment strategy should prompt an immediate review.

2. The Permanent Fund managers’ declarations that the fund was diversified when the fund had greater than 30 percent tied to the value of real estate, and the managers’ belief that real estate would always go up was not prudent — or the fund certainly wasn’t diversified. This was also pointed out numerous times. This violates the rules on diversification.

3. You may not be able to pay dividends this year or the next without invading the principal. This is a violation of the Permanent Fund. You need to protect Jay Hammond’s vision.

4. The Permanent Fund will lose another 25 percent based on its flawed asset allocation model based on inflation. The economy is in deflation.

5. The fund balance sheet was, and is probably still, overstated by billions.

6. The Permanent Fund has less in it than when the current managers took over years ago. Why is that prudent?

7. No oversight of the APFC has allowed the fund to pay advisors/friends millions in fees. Measuring performance against simple treasuries all of your advisors have failed miserably. You’ve allowed someone to oversee $40 billion and pay out millions in fees without any independent oversight. This is big trouble. Hiring former employees as advisors is not a good practice and is reminiscent of Enron. This must stop. Fees tied to performance should be a must.

8. $10 million paid in fixed-income fees for results that underperformed a simple U.S. Treasury by 75 percent begs to be investigated. The fund was advised to buy treasuries more than 30 times. Why didn’t we or why don’t we?

9. Deflation is a long-term economic event. The rules for investing are quite different than investing in an inflationary period. The asset model used by the fund is obviously broken, but is still being used by the fund managers.

10. The United States may be entering a long-term recession and perhaps depression. Preservation of capital is critical. The fund has not been positioned correctly. We will lose even greater amounts than any of you can possibly imagine.

11. The fund should have closer to $50 billion secured by buying treasuries last year, rather than $28 billion. Managers and advisors ignored warnings.

12. Did the advisors and managers hold the same investment positions as the fund?

13. I believe the dividend will be lost for years causing many Alaskans to suffer and help push Alaska into a deep recession.

It was the people of this state who made the monumental decision in 1976 to begin saving a portion of our one-time oil wealth. That decision has proven visionary. Now it is time for the people of Alaska to make another decision if they want to limit spending and protect the fund for the future.

Please help.

You must change the management, eliminate the advisors, scrap the asset allocation model based on inflation and mitigate our losses now. Replace the entire bond portfolio with zero coupon treasuries. Most of all, start thinking after you admit the basic facts. There are two sides to every trade. Why is Alaska’s Permanent Fund on the wrong side? Your lack of action cost Alaskans billions. Further delay will destroy the fund for decades and for the next generation of Alaskans. Please act quickly to review and make these changes.

This just is my opinion.

Bob Andres in a Wasilla investment advisor who has been a vocal critic of the management of the Permanent Fund. His views and conclusions are his own.