APFC Board of Trustees Annual Meeting - Nome - Day 1

The city of Nome for its amazing hospitality. The weather's been beautiful, the people have been fantastic. I had a great opportunity to present before the Nome City Council on Monday night. I appreciate their, their time, and we're really excited to, to have people from the community here today, as well as I know coming for lunch and, and otherwise. So thank you, Nome, and thank you to all the trustees for making it up here, and, and staff.

We're excited, very much excited to be here. With that, we have a roll call already been taken. Could I please get a motion for the approval of the agenda? So moved. So moved.

Second. We have a motion and a second. Are there any additions or corrections to the agenda, fellow trustees? Seeing none, is there any opposition?

The agenda is approved. Moving on to the minutes of the September 2nd regular meeting. Can I please get a motion for approval? Move to approve the minutes.

Second. Motion and seconded. Any additions or corrections to the minutes of September 2nd?

Any opposition? Seeing none, the minutes are approved. We'll turn it over to our esteemed Executive Director, Devin, for the CE— oh, whoops, before we do that, After all that, we're going to have an opportunity for public participation. We did receive a written comment from Ed Martin. I don't know if Ed's on or not.

I know Vice Chair Schutt had the opportunity to speak with him, and I don't know if you'd like to just briefly summarize his comments and the conversation you had with him. Sure. Spoke with Ed a couple of days ago. He's interested in APFC analyzing issuance of state general obligation bonds that could be purchased by APFC as an investment, kind of underwrite infrastructure development and investment by the state of Alaska. So It's a multi-step, clearly a multi-step proposal that require action by the, you know, the legislature and the executive branch of the government before you're ready for investment.

But something that we can look to a little bit and figure out what our cost for the PFC would be if there was such a thing to come about through the other To the state government. Awesome. Thank you, Vice Chair Schutt, and Ed, thank you for your written comments. Jennifer, I believe those were the only written comments we received, and so we're now going to open it up. If folks are interested in giving testimony, you can raise your hand on the Teams function, or if you're on a phone, you can press star 5.

Anyone interested? We do have one, two people that have raised their hands. Jennifer, if you could put them on or notify them, and then you'll have 3 minutes for your public testimony. The first public comment is a phone number, 7757. I'm going to unmute you, or I'm going to Remove you.

And now you should be able to do star 6, unmute yourself.

Enjoy. The phone number ending in 7857, and if you push star 6, that should unmute you.

So 7857, if you are trying to speak, we don't yet hear you.

Um, you could press star 6 again.

Try the other person. So yeah, let's— yeah, I think Devin's got a great idea. Let's go ahead and try the other person and we'll just make sure that our sound system is working. The phone number ending in 7857, we're going to come back to you. And so let's— who's the next person, Jennifer?

Thank you so much. You should be able to unmute yourself now.

Jim, are you able to hear us and unmute yourself? I wonder if it's a permissions thing on Teams, maybe. That might be the problem.

It says cannot unmute in the chat section. Oh, okay. We're going to take a brief at ease and we'll work this out. For those of you that are trying to testify, uh, just keep, keep trying to unmute it and, uh, we'll take a brief at ease. Oh, um, Jim just unmuted.

Jim, oh, now he's muted again. Oh, hello, are you hearing me now? Yes, yes, we are hearing you. I'll reconvene, uh, meeting's back in order. Jim, is that you or is that— Yeah, yep.

Perfect.

We'll put you on the record. Please identify yourself and we'll give you 3 minutes. Thank you for testifying today. Chairman Rabruni and trustees, good morning. I am Jim Simard from Juneau.

I'm a board member of 350 Juneau Climate Action for Alaska, and I'm a grandfather. Well, no doubt you follow the current news that the U.S. Supreme Court We'll be hearing arguments next week in the case of Suncor Energy versus the County Commissioners of Boulder, Colorado. The two main questions before the court at this point are, first, whether federal law precludes state law claims seeking relief for injuries allegedly caused by the effects of interstate and international greenhouse gas emissions on the global climate, and second, whether the Supreme Court has jurisdiction to hear this case. Also in the news is the recusal of Justice Samuel Alito, who owns stock in other gas and oil corporations. The background of the case, of course, is the flooding followed by the fires that ravaged Boulder County, destroying over 1,000 homes.

The original tort case brought by Boulder County seeks financial damages from Suncor and Exxon. The decisions of the Supreme Court in this case will have implications over other suits over energy policy at the local and state level, including Sugunak versus the State of Alaska, which challenges the legislation that created the Alaska Gas Line Development Corporation. However it is that the many climate-related lawsuits proceed in state, federal, and international courts, the climate crisis continues unabated. The melting glaciers, the coastal flooding, drought and wildfires, extreme storms, crop failure, and human migration all continue. There's little doubt that the long-term use of fossil fuels is the primary factor.

So we're in a moment when world powers are waging war on each other to secure access to supplies of gas and oil, while at the same time The extraction and use of these fuels is so visibly, visibly endangering the global economy and the health and welfare of all humans. So that's the reason that I'm advocating for the Alaska Permanent Fund to prioritize investment in renewable energy development. We have the opportunity to lead rather than follow in the greatest challenge of our time. Thank you for your time. I'll be happy to take any questions.

Thanks so much, Jim. We appreciate your, your constant advocacy and appearing before the trustees at many meetings. And absolutely, I'm paying attention to that case next week and looking forward to the arguments. So I appreciate your, your comments for sure. Any, any comments from trustees or questions?

Seeing none, Jim, thanks again so much for testifying today. Thank you. Okay, we're going to try once again for the phone number ending in 7857. If you could please press *6 to unmute yourself, and we'll see if we can get your testimony.

So it's— in order to be able to testify, you have to press star 6 for the person ending in 7857. The other option, we do have an email address. If you're not able to get through, we, uh, we're going to have another opportunity for public comments tomorrow, and we can read your comment, uh, sent to [email protected].

Otherwise, um, we, we still can't hear you, Jennifer. I don't know if you have any other thoughts.

I don't. Um, I just confirmed that is Mr. Martin. Um, that's his phone number, so we have his written comments. And of course, he knows how to get a hold of us. And so, well, there's nothing we can do on our end.

So I do apologize, Mr. Martin, that we can't unmute you from our side. And Mr. Martin, we did summarize your comments. Vice Chair Schutt did, and based on his conversation with you earlier in the week. So we really appreciate you sending those in. In the meantime, I see there is another hand up online.

Okay, he logged in through Teams, so let's switch this. Okay, Mr. Martin, you should be able to unmute yourself now.

Hello, can you hear me? Hey, yes we can. It's so great to hear from you. Thanks for your patience and your, your extra efforts. I'll tell you something, I just, I'm trying to turn on stuff here.

I'm not that technically knowledged about computer. There we go, you could see me, but I don't know if I can hear you now. Can you hear me? I, I can both see and hear you, so good morning to you, Ed. Great to see you.

How do we do this? Can't hear us.

Are you able to hear us, Mr. Martin? Man, in the meantime, while we're trying to— he's trying to figure out that technology, I want to invite anyone that might be here in the room, if you're interested in giving testimony Uh, looks like it might just be staff. Uh, yep, if you're interested, happy to put you on the hot seat for 3 minutes. I can't, I can't, can't. You guys can't hear me.

We can hear you. Yes, we can hear you.

Yes, get up there, get up there, Jason. Like, hold up a sign.

This thing is too hard to know.

Navigate. Jennifer is about to do it. Thank you, Jennifer.

I don't know what I'm doing.

I really don't. They can see me, but I can't talk to them. Uh, okay, you gotta—. There you go. You're back up a little bit.

It's hard to— oh, there you go. Can you see it? It's hard to read. It is. I should have used the Sharpie.

Yeah, it's not showing up very well.

Welcome to the audio conferencing center. Please enter a conference ID followed by pound.

Continue in English. Press 1. Trustee Samuels, as the, uh, most junior, uh, trustee of the group, I think you need to, uh, sing some Johnny Horton. I can't do it. To continue in English, press 1.

I don't think he can see us. I'm sorry, I don't have number in front of me. Uh, I had earlier.

What it is, I gotta go back to the—. Sorry, you didn't get— please enter a conference ID and then press pound. Whatever. 871.

This thing ain't working. Oh, you can't hear us. Sorry, I didn't get that. Please enter a conference ID and press pound.

Okay, conference. Sorry, no current meeting matches that information.

Please—. Frustrating, right? Yeah, maybe we should—. We have Okay, I guess you guys can hear me, but I can't hear you. That is correct.

You're making a great effort to try to get me on. I'm just not skilled on what's happening here with this system. I've been on other systems and never had a problem, but I think that— and I appreciate if you guys are listening, that you've read it, you'll consider what I've proposed. Posed. It's not much, just, uh, please, uh, go through the numbers for the benefit of Alaska and its people.

And one other thing, if you're still listening, uh, while you're in Nome, walk around the community, ask some of the people there if they'd rather you invest in them, in the state of Alaska, than Wall Street. I think you'll be surprised how much they would be happy to see that the money invested by the Alaska Permanent Fund be in-house, under the tent, in the igloo, however we want to state it. So, Jennifer, I'm going to sign off. I hope you guys heard all this, and I beg you a good day. And when in the community, enjoy tonight some Eskimo ice cream.

For me. God bless you all. God bless you too, Ed. Thank you so much for your testimony and for your efforts to, to try to get through to us. And rest assured, we've all seen your email and your comments, and we appreciate your engagement.

There is another hand up. I don't know if that's a residual hand or If you have public testimony, feel free to use the raise your hand feature.

Okay, looks like we are going to close public comment for now and remind everyone that there will be another opportunity tomorrow before the end of the meeting. Thank you all for your testimony. And now we will go to our esteemed leader, Devin, with his CEO report. Thank you.

And I do like the drum hording.

In your packets, there's a series of reports, and I was thinking that maybe just because of the first report usually being the one that gets the most interest, maybe we'll go in reverse order today. And I do think that it's warranted given some of the information that's in the financial report. If you turn to pages 26 and 27, it shows a series of charts associated with current— the last completed fiscal year as well as prior fiscal year performance. And statutory net income on page 26 is the first of those, and you can see that each one of the last 4 fiscal years there was growth in statutory net income. So 2.5 $1.2 billion in 2023, and that was back when we were concerned about the earnings reserve account and the viability of the earnings reserve account to provide for the state transfer because of diminished steps toward net income.

And then since that time, we've seen a gradual increase to $4.2 billion the following year, $5.9 billion, and then $8.2 billion this year, which is a high the high end of the statutory net income that comes out of the permanent fund. And we currently have at fiscal year-end '26, fiscal year-end, $18.1 billion balance in the earnings reserve account, of which $10.6 billion was realized and not required for the current fiscal year. So going within a short period of time from a place of concern for the earnings reserve account to a very healthy Earnings reserve accounts, GAAP accounting income in the chart right below that has a very similar story, although with greater volatility. So total return versus, uh, realized income, uh, $4.3 billion being, uh, earned in FY '23, $5.5 billion in '24, $7.8 billion in '26, and then $10.1 billion this last fiscal year. So again, an extraordinarily high accounting net income number for the last fiscal year.

And interestingly, the unrealized gains portion, which explains the difference between those two charts, because the difference between statutory net income and total return is unrealized gains, and the difference from '22 to '23 was $1.8 billion. So there was $1.8 billion more unrealized earnings than realized earnings, 1.3 in '24, 1.9 in '24 to '25, and '25 to '26, 1.9. So there's been a steady increase year over year of unrealized gains, which highlights the two-structure system that we currently have. And the—. I don't know if outdated is the right word, but the disconnect that we have between how the fund is invested and accounted for and how the funds determined to be spendable or not.

On the—. Real quickly, just for the public's purpose, because we've had this conversation a number of times, the $18.1 billion, does that include the money that was transferred for this year's $4 billion, or is that— has it already been, or is that part of the $18 billion? So the $18.1 billion was in balance as of June 30th, so prior to the start of fiscal year '27 that we're currently in with the $4 billion transfer. So the $4 billion is in the process of being transferred. It's been committed for FY '27.

I think around maybe $2 billion has been transferred at this point, and the balance will be transferred in concert with the Department of Revenue as needed for, for the state financial needs. And then as a follow-up to that, and this is where the gray area is, we all believe that the legislature with a simple majority, 21 and 11 vote, could tap any of that $14.1 billion or $18.1 billion that's remaining, and then the additional $14.4 billion that is the unrealized gain is the gray area as to whether or not a simple majority could access that or not. It's close. So in the earnings reserve, there's $3.5— so that $18.1 billion balance would include $3.5 billion of allocated unrealized gains. And the remainder of the unrealized gains would be held in the principal of the fund.

The 3.5% is the debatable portion, whether or not it could be appropriated or not, depending upon your viewpoint. The unrealized gains, there's some additional debate because it's not, it's not protected by the Constitution. It's allocated to the principal based on an Attorney General opinion. And so it's just a lesser standard. Right.

We obviously have a perspective on it, but if the legislature wanted to push that, that would be their priority too. Yeah. Um, and again, I put this out there because of the constitutional amendment question and the two accounts. Obviously, we trustees remain supportive of the constitutional amendment to combine the two funds. That would do away with this question of what is accessible.

And what isn't. So I just wanted to make sure at every meeting that we, we talk about that. So thank you, Devin. Trustee Samuels. Yeah, thank you, Mr. Chairman.

So I wanted to be really clear. So we're at 18, we're going to give the state 4, and then there's 3.5 of that that is in gray area. But right now they could, with no questions asked, with a simple majority, they could take $10 or $11 billion up to $14 billion. Yes, and arguably more than that with the unrealized gains. I don't know that arguably it's just that it's not, it's not definitive that the additional unrealized gains are protected by the Constitution.

It is allocated as principal and we consider it principal, but it is not inflation-proofed under the statute and it shifts over to earnings reserve if it's realized. So it's categorized, but it's not permanent. Thank you. Back to you, Bob. Thank you.

On the following page, 27, you have the market value of the fund at the fiscal year end. Again, you can see the, again, year-over-year steady growth from '22 to '23, $1.7 billion increase in market value, $2.5 the following year, $4.6 the following year, and this last year, And so again, relatively strong performance for fund growth, and that's culminated with a $91.9 billion value at fiscal year end of 2026. So a record-high value for the permanent fund. It's interesting, the dedicated revenues, so primarily oil revenues but other revenues from resource development in the state of Alaska are concentrated in that $490 to $540 million range for 3 years. You had the outlier year of 2023 with $750 million of contributions.

I would expect that based on the high price of oil, which— what the forecast for '27 was, $89.07. Oh no, at $75. That was actually— we've had an actual experience of $89.07. The forecast was $75 in the spring forecast. And so we have a fairly significant spread above the projection that was made in the revenue sources book for deposits into the permanent fund based on a lower price of oil that was projected by the Department of Revenue Tax Division.

And this week, I know the last time I looked, ANS, Alaska North Slope crude, was selling at $105. So those are the positive, I think, trends that we have within the fund. The actual performance, which Mark will dive into a little bit deeper, was relatively strong in the last fiscal year. The total fund is 12.42%. Unfortunately, our performance benchmark was around 13%, so we underperformed our performance benchmark by 48%.

So there's, there's positive aspects to our performance, but certainly on targets that we set for ourselves, we didn't hit it last year. And in some ways, to me, that's not necessarily— I mean, obviously it's not positive, but it's not a negative in as much as it means that our targets aren't automatic. And when you have targets that are automatic, it can diminish the reward of when you hit that target. And so to have targets that are hard to achieve and that we have to do an exceptional job to reach, that's not a bad thing. And we had strong performance on a relative basis.

And so there's a silver lining to that story.

So again, moving—. Real quickly, just while we're on this theme, and I know we had asked Trustee Earls this question previously, and I don't know if she was able to get an answer there. There's going to be a number of fields that are coming online in NPRA, and there is state revenue sharing that, uh, uh, with the Big Beautiful Bill is going to be going up to 70%. It's currently at 50%. I know that part of that, or most of that, there's interpretations that it goes to the impacted communities, but there was the question on whether any of that, the 25% of that, is shared with the permanent fund, and I don't I don't know if we've gotten an answer or we know an answer to that, but that's going to obviously have an impact on what we're bringing in, and we should— if we don't know the answer, we should ask for a legal opinion on that so we understand the revenue to input once the fields in NPRA come online and hopefully in the future ANWR as well.

Thank you, Chair Brune. I'm going to ask about that and get an opinion. Thank you. Thank you. Thanks.

Back to you, Devin. Yep. So, uh, moving backwards in the report, page 23 just is the investment referral tracking log, which is a procedure that we have just for documenting when the board provides staff with, uh, referrals. And there was a couple in the last quarter, um, and how then staff responded to those.

In the technology report, we have a number of items. I think that there's been a lot of focus on AI within the organization. It's an area that seems to be moving more rapidly than a government is intended to keep up with. And so we've been struggling with the idea of how do we ensure that our data is protected, that we don't release confidential data to our partners, our investing partners, and yet be able to utilize these extraordinarily powerful tools. And so we've done a number of things in addition to what's in the report, the Microsoft Copilot more recently.

We've also been working at— just signed a contract for Anthropic Enterprise licenses for some of our staff to be using additional AI tools associated with that platform as well as there are some specialized AI tools out there. The one that's been implemented is called AlphaSense on our fixed income credit team. It's an AI tool that, that mines all of the both publicly available data as well as subscription data for analyzing credit. So it's just Kurt does a lot of the, the grunt work that's required to be able to make an investment decision. Some of the hopes with the Anthropic implementation is that a lot of times on the private market side, when you're given an opportunity to invest in a potential fund, there's a compilation of data that's made available to a potential investor, and it requires a lot of analytical time to go through that to conform it to the metrics that we're looking for in a particular investment.

And when you can take a data room like that and turn it through an AI tool that you've set up with parameters that are going to provide outputs that are equivalent to the analytical work that you would have had your staff do, it allows for a greater number of investments to be considered with the same manpower. And so it's a things that are, are viewed very favorably as improvements within, in the, um, space. And we're all excited to, uh, to see where it leads. Although I did watch something recently about the, uh, the guy that, uh, is creator of, or the, the, the primary Anthropic, saying that the world's maybe going to end in 10 years at like a 75-25% chance. So, um, we'll see.

How that works out. The legislative update, obviously we're in the interim, and so the session starts in on January 8th, and we'll be prepared for that. There will be new legislators and new governor in place at that point, so it'll be interesting to see that as it occurs here in the next couple months. Yeah, and I'll just add to that that Trustee Samuels and myself are going to be reaching out to the 4 gubernatorial candidates to meet with them to discuss our, obviously, APFC, as well as our support for the constitutional amendment. I know 3 of the 4 candidates at a recent forum came out in support of the constitutional amendment, so that's encouraging.

And Trustee Samuels, anything you want to add to that. We're also happy for those listening online to meet with, uh, prospective legislative, uh, candidates as well. If they're interested to hear our perspective, feel free to reach out to me, Devin, Pauline, Ralph, or any of the other trustees. Thanks, Devin. Um, so first, maybe with the main communications report, you all have a copy of the annual report.

A lot of effort goes into that from Juliette and Pauline and our team on the communication side. And we're proud of the product that they put together every year. And again, I think they did a great job and provides a message to Alaskans on not just how the fund's doing, but how we do it, some of the personalities involved. And so it's just a, I think, a product that takes a lot of effort, and we're definitely proud of our team for putting it together. The other thing that happened this last year that's notable is just there was a shift on our in-state communications consultant from Hewitt to Walsh Sheppard that happened this last summer.

And so that's been implemented, and they were helpful in producing the annual report as well as dealing with other communications undertakings.

Prior to that, we have the HR summary report in which we— and I guess there has been a bit of an evolution in the process for filling vacancies. We did up until last week have to seek approval to fill vacancies, and then once you found somebody, fill vacancies. And so it was kind of a pass twice type of process that— and it would have been nice if they eliminated the second part of the process, but they eliminated the first part of the process. We no longer have to ask for permission to recruit. We still do have to ask for permission to hire if we find a candidate that we're interested in.

Bringing on board. And so what we'll continue to manage with that is in our ongoing recruitment needs. We have brought on 4 folks since the last quarterly meeting. Aditya on the fixed income investing team, Micah on— we heard his voice earlier— on the IT team, Mateo on the private income team, and Scott Jones is our chief operating officer. And Scott's actually here in the room back there.

So he's— all of, all of these folks have been great hires, and the initial take from at least my perspective is very positive on all of them. We continue to have a strategy with our vacancies. We are looking at giving one of the vacancies that was obtained a few years ago and never filled back. So we are giving up a PCN. It's— I don't know, we'll figure out how to manage with that in the future because as we've been looking at AI, tools, there's a precursor to being able to effectively use AI is having your data in a format that's usable.

If your data isn't in a usable format, then you can have difficulty in getting the full, full impact of an AI tool. And so we've been talking a lot about that potential process. That's been one of COO Jones' focuses since coming on board. And so we may be looking at modifying one of our other positions that's currently vacant for a role more closely aligned with that need, but we'll figure that out in the future.

The—. Let's see, we had— we did fill one of the requests to hire at the Governor's Office for the Private Income Portfolio Manager. That was a approved. That's Terri Rutherford, who was a senior analyst on Ross's team, who's been promoted into that role. And so we were happy to get that approval.

And we've—. Let's see, the rest of these are still in a similar place. We did have an additional, um, resignation on our IT team. Um, Joseph Gerald, who had, uh, worked for what, 2 or 3 years for the fund, um, had family issues that he's moving back to Southern Illinois where he's from. So sorry to see Joseph leave.

He's a hands-on guy in the office with IT work, and we'll be looking to backfill, um, Joseph Otherwise, the prior report is just the due diligence and travel summary. I think that the travel summary definitely shows that we have, at least in the last fiscal year, sufficient flexibility for the needs of the organization. Sometimes it's not— it's not always allocated correctly. We've discussed this with the budget development that you know, there can be one, uh, travel silo that is under budget and another that's over budget, um, but the, the aggregate is, is that there's still sufficient flexibility. As far as the, uh, the investment disclosure reports, those of all we've compiled as required are included in, in the report.

Trustee education is on page 11, and those are just a couple of ideas. I think the one that, um that the trustees have identified as being beneficial has been the CALN National Conference, and it's listed in your report, equal 4 through 6. So this spring, CALN will be putting on a conference similar to the one that they held last year and at the same venue. I think Greg said they've got that venue secured for the next 3 or 4 years. 3 Years.

I think we're going to stick with it. It works really well for us. Yeah, yeah. So, uh, if you are able and we are able as an organization, that definitely was, uh, something that we've, uh, derived value from. I would like to encourage at least the 4 of us, uh, public trustees to put that on our calendar, please.

And then Hopefully the Commissioners will also be able to join us, but we shall see.

Thanks, Kevin. Yep. Pending Board matters, I think we are signing off on the benchmarking policy, and so that's, that's been completed. The two that have been on here for some time, compensation structure and peer group definition, that's We've not just been ignoring that. We have been compiling data on salary information related to the industry.

It's just that it's, it's one of those areas that there is a lot of gray, and that when you start looking at salaries, what does a position entail, and who are your contemporaries or your peers, and are they doing the same thing? Does this— are there other factors that go into total compensation? Are there underlying requirements for positions that you may or may not have? And so there are a lot of little tweaks that can make big differences in outcomes. And we were talking about giving a presentation to the board at this meeting with some of the information we found or have discovered at this point.

And I think we're planning on bringing something forward at the next meeting just for consideration, not necessarily action at that point, but certainly to lay a framework for the information that we've found and where we see strengths and weaknesses relative to the pay that we provide our staff. Yeah, I'll just add to that that I think it's incredibly important in light of the fact that we recently added the incentive compensation, that we have a new governor, that we have a new legislature that's going to be coming in, that we are thoughtful in our analysis of that and able to just speak to how it's worked and if there is any changes that we should be contemplating in light of that. So thank you, Devin. So the thought was December June, December meeting then for that. That is our target, um, unless something happens.

That's what we would anticipate is providing summary— I mean, not necessarily detailed information, but summary information that will give the board a flavor of how, like I said, we have strengths and weaknesses within our compensation. Yeah, and recognizing that we've already approved our budget for fiscal year 28. Yes. And so, uh, this would be something that would either be a supplemental if we do take action, or would be for fiscal year 29 and for next year's budget. So obviously recruitment retention matters from a responsiveness perspective, and that's several years out, so we may need to act prior to that, depending on what ultimately is the outcome of the analysis.

Yeah, just to give you a flavor of my observation, and it's not complete, like I said, there's a lot of gray, and incentive compensation programs are one that are particularly tricky because there's a lot of variability in the public sector versus private sector, but in the investment space generally, and so our our program, which might be incredibly generous in the state of Alaska context, could be insufficient in another context. And, and so if you just look at base salaries as one metric and ignore incentive comp a little bit, there's— we're in the ballpark for most things. There's, there's some things that we should allocate additional resources and others that we're doing okay. You layer in incentive comp and it just makes the equation that much more difficult. And so that's where I think some of the work that we'll try to get under our belt between here and there to give a more informed picture to the board.

Thank you. And Callan will be helping with that? We could, if they want to. I mean, I guess that's a question. Was your thought to engage Callan on this or not?

And it's okay either way. I like to engage external firms. So Aon is one. One, and Mercer's another, and NC Carolina's another. I don't know, we've procured a number of salary surveys, um, to— that have candidly pretty varied results for similar questions.

And so we're— that's, I mean, that's again, we're trying to put together the matrix of of how do we take this somewhat varied information and get it into something that we'd homogenize for here's what we think we are.

Sure, sure. Great. We use—. Is your microphone on? I think it's on.

Green light. Green. All right. We use a company called McLoughlin. Yeah.

Have you heard of them? Okay. With all due respect, Oh yeah, you were in that meeting, weren't you? Yeah, that was funny, Devin. Thank you for that.

That's a historical for— yeah, who are trustees. So, um, they, they seem to have a very, uh, they have a focus on the investment management industry, the consulting industry, and I believe also sort of public funds and, uh, staff. And so we found them to be The broader firms tend to be too general for us to get good comparison points for our investment people. So I just suggest that you might want to talk to them. Thanks, Greg.

And one thing I would ask just as part of the analysis is a confidential APFC staff survey as well, so that we know their perspectives. How is— how are the people that work for corps feeling that they are compensated. And I want to reiterate confidentially so that they, you know, they feel open to be able to answer in a way that— and obviously not— don't ask specific questions about what their titles are, what you could potentially interpret what they are, but just— but I think that would be valuable for the trustees as we're considering, because we may not be competitive by some of these entities that you're working with. But if our staff are happy, that's something to contemplate.

Yes.

So that, again, going backwards, leads us to the first page, the summary for the memo for my report. There was one more thing I wanted to mention that We got a new addition to our team this week with Jesse Perletti, who Jordan delivered this Monday. And so on the accounting team. And so we're happy to see her with her new daughter. And we have another staff member, Marissa and Cody, double staff member having a child later this month.

So a couple of new additions in the ATFC family. And I don't know, how big was Jordan's baby? 4 Pounds or something? Like a tiny thing, but healthy and happy. Yeah.

Well, congratulations to them. Since it is small, we do have room in the Anchorage office for them.

Any questions for our executive director?

Great report, Devin. Thank you very much. We'll move on to Marcus and our CIO report.

And I'll have Helen know that we are 15 minutes ahead of schedule, even with our IT issues at the start. So just throwing that out there.

I know, but the more—. 5 Hours if you need. The more time that we save now, the more time that we'll lose tomorrow. So, you know, I say that in love. Marcus, the floor is yours.

All right. Thank you. For the record, Marcus Frampton, the Chief Investment Officer. And I'll go through the CIO report.

It's on.

I think the battery is dead. Nothing displaying. Oh yeah, there's actually— it's empty. The battery's empty. It's, uh, Sorry, you can see that?

Yeah, like it looks like the little batteries. I know, take pictures. Yeah, exactly. Be very clear, we're not using solar-powered, uh, slide advancers. You need mining for batteries.

I'm just going to start with some highlights and what we've been working on. As Devin alluded to, the absolute return this year was quite strong at 12.4%. That's the highest return in the past 5 years for the fund and the third highest in the past 10 years. And then I went back to the beginning of the POMV system, which was fiscal 2019. And I'm actually doing the— this 93 is a little higher than the 91 that Devin mentioned.

It includes all the funds we manage, Mental Health Trust and Power Cost Equalization, gets it a little higher. But since inception of the POMV system, the funds we've— the amount we manage in the fund has grown from $65 billion to $93 billion, and we've dispersed $26 billion in PUMV payments to the state. We've received just under $4 billion in royalty deposits. So the gross value net of those two items was $115 billion. So 76% growth in total value in that 8-year period of time.

I think it's notable that over that 8-year period, the performance of the fund was 8.62% net of fees, exactly in line with the performance benchmark.

It's kind of a remarkable coincidence that it's exactly in line. That's how the numbers look. And beating the passive benchmark, which was 8.19% over that time period, and the CPI+5 return objective, which was 8.59% over the period. I've said this before, but just to reiterate, I think that when we do asset, the return objective comparison to the performance benchmark kind of answers the question of is the asset allocation decisions that were made, did those work out in terms of providing a mix of assets that achieve what the stakeholders of the fund are looking for? And it did almost exactly, 8.62% versus 8.59%.

And then the passive benchmark compared to the performance benchmark kind of answers the question of whether the inclusion of alternative and private market investments in the mix add value versus a similarly diversified index fund approach. And that was probably the strongest outperformance was that having the more complex approach, the private, the alternatives versus an index fund approach over that 80-year period added over 40 basis points. And then the final point is how the fund does against the performance benchmark measures. Against that performance benchmark, did our— was our implementation above average or average or below average for the summation of all the different asset classes we're in? And over that 8-period of time, we were exactly in line.

So, and then finally, the $8.2 billion cash flow net income for the year was record-breaking. So it was— I think for the things that our stakeholders look for the fund on, this last 8-year period was a success. And 2026, the final year of it, was a very strong year, but the stock market was up over 20% in that time period, so that drove a lot of it. Hey, Marcus. Yeah.

Why was the statutory net income so high?

Uh, we've got the mix by asset class, but I think overwhelmingly the public equity. We've been doing a lot of rebalancing, getting the tracking error down, and then also rebalancing with— I mean, our portfolio was up 23%, so just trimming back to the target. But I mean, exits have picked up substantially for us in private equity, which kind of like bucks the overall trend, and we're getting you know, over $1.50 back for every dollar deployed. So I don't have the numbers on the tip of my tongue, but I think you probably look at a billion or so extra net income in private equity, maybe more. And I think over half will probably be public equity.

Marcus, does that $8.2 billion— is it inclusive of, uh, the power cost equalization and mental health? That metric just refers to the permanent fund. Those other— and correct me if I'm wrong, Devin, but those other two smaller accounts don't have that accounting framework layered on top of them.

But we did include— so the only thing that is outside of what the permanent fund is, is the 93.2. 91.9. No, no, I get that, but on this pic— on this slide, we have 93.2 listed, which is inclusive of the other 2 funds that we manage. Is anything else on this slide inclusive of that? No, on the left I'm referring to the permanent fund, and the chart on the right includes a couple billion of those 2 other—.

But all of the rest of like the $8.2 billion for the statutory net income, that's—. That's just us. That's just us. Okay, thank you.

I think we may want— I understand that, but we may want to not mix apples or go all in on that. I mean, it just takes some explanation there. Yeah, for future slides.

Yeah, and then I was also— I, I constantly am reminded of like how transparent the fund is. I think if you look at us versus other public funds, the disclosures, um, I don't think there's anyone with more disclosure, and I think 90% of public funds have less disclosure. And I'm talking about topics like E-reports down through carried interest Reporting overall results, yeah, versus benchmark. There's a lot of public funds that, that still surprisingly to this day report gross fees. Reporting the timeliness of the reporting.

So I'm going to talk about PEERS in a minute, but like we're out with our June results. When I did this deck a week and a half ago, there wasn't a single Ivy League endowment that was released June results. 3 Of the top 10 largest state pension systems had results out for June. 7 Out of 10 have not released results. I don't think any of them released the reports of the granularity that we have.

So, um, many of our peers, particularly in the endowment space, like, really focus on long-term numbers. Like, and that yellow there, that is the entirety of Yale Endowment's most recent results. So like they, the last results they came out with were June 2025. They gave a total fund return, no benchmark. They gave a 10-year total fund return compared to university peers and compared to a passive index, 70/30.

And they guide their stakeholders towards that longer lens. And I think they view, and most of our peers I think we should view a long-term investment horizon as a strength, particularly when you're in a market like we've been the last few years with very high concentration in a few stocks and, you know, short-term trends that may not— that there's fair reason to believe will not play out long-term. So if you look at on the bottom right there, it's kind of like our results through June, through the that 10-year lens that Yale at least looks at. And it's a strong result against all our benchmarks. I also put 40—.

The longest data we have is 43 years. And we are—. I was just talking earlier that I need reading glasses, like totally flipped in the last 6 months. We're under the fund over 42 years is slightly under the performance benchmark. We introduced the passive benchmark concept about 15 years ago, so we don't have that number for the 42 years.

And then in the last 10 years, that's flipped and we've beaten on the performance benchmark. I think there's a lot of— you can have a long discussion of why for the first 32 and a half years we underperformed and we've beaten in the last 10 years. There's a lot of factors that go into that. But to Devin's earlier comment, it's not When you've got real benchmarks, you report that it's not an automatic thing year to year, and it certainly wasn't the first 32 years of the fund, but the last 10 years kind of is the result.

Turning to the peers, I commented earlier that I, at the end of June, I'm always looking for all the peers coming out and looking at what's working and not working. And so the other plans that we compare ourselves And it was when I did this, that too early to look at the June 30 results of the 10 biggest state funds, 3 had released. CalSTRS had a 13.9% return, so stronger than our 12.4%. I believe it was largely a result of their 43% equity allocation. Equities were up over 20% last year.

So we have about 10% less than they do in equities.

Virginia Retirement System is the— was one of the 3 that reported. They have the same 34% in equity that we have, and they did 12/1. So on the early, like, big state fund results, we're under 1 for the much higher allocation equities, and we beat 1 at the same allocation equities. And that you can't really look at the big endowments, university endowments. They'll have their results out in like November, December for June.

Um, at the last board meeting, just the second bullet point there, I noted that a Domestic Sovereign Wealth Fund, uh, research report came out in April 2026, and APFC was the top-ranked domestic sovereign wealth fund on 5 and 10-year basis. So I mean, there's not an update there because that comes— we'll have an update on that next April. But on the most recent one, it's strong peer results. The research firm that did that report, in return for us giving the data for them to do that, gave us the full peer analysis that they have in their database. And they got us— they do it.

You'll see in our peer analysis later with, with Cowen, it's a gross fee versus gross fee. This is a net fee versus our net fee versus peers' net fee. So it's a little bit different analysis, and we— it's more flattering to us on this. And I think the implication, which I've long believed, is that we operate very efficiently. Like our fee load is less than our peers due to a number of factors.

And so we've got large endowments on the left there, our net results against their net results. Top—. I mean, Juan, it's a little small, but the top is just 5-year fund performance. There have been times we're top quartile, there are times we're second quartile. Same with large public plans.

And this is rolling over time going back to, uh, June 2020. So 5-year results against peers rolling going back 6 years. Bottom is Sharpe ratio, which is top quartile for all the time periods. So it's, I think, too early to have good data on June numbers. This, by the way, the last number is March '31, so I'll try to get the latest when that's available, but we'll keep an eye on how the peer numbers roll out as they come out.

But that's kind of like my early look on what I'm seeing.

And then on this page, I'm going through how we're thinking about each of our big asset classes, and I've colored it based on how the numbers look. So we've got on the right there, we got fixed income and absolute return are beating on a 1 and 5-year basis. We did absolute return at the last board meeting about these. So the, the strategy and approach should be fresh in folks' minds there.

And then the yellow, the 4 other big asset classes are ones that are If you look at like the 5-year and each of these, each of these in yellow under modestly on 1 and on 5 and on the bottom right, real estate's going to be the focus of the discussion today. So we'll get a lot on what the strategy is there. And there's a lot going on. We're in a big divestiture process with our direct holdings and we've sold several properties in the last 9 months and we've been recycling into funds. If you look at 5-year on real estate, we're 3.94%, the benchmark's 4.18%.

So it's not like far under, but we want to improve when we're beating the benchmark. And real estate's an interest rate sensitive area. So I mean, that's—. I'd be remiss if I didn't comment that like the biggest thing happening in markets right now is interest rates going up. So I believe that's impacted some of our divestitures, but buyer appetite in this new rate environment.

But the good news is that we have such a big portfolio and Eric's doing a good job going out with a number of properties and not feeling like we have to transact on anything. So there have been a couple instances, including last week, where the bids were underwhelming and we pulled an asset off the market. But in real estate, I think the execution's been strong. The 5-year numbers, like I said, are just very modestly under benchmark. And we'll, you know, spend more time on that today.

Going to the top left, public equity has probably been the biggest drag on the fund results and, and why we've struggled versus benchmark on 1, 3, and 5. So last year public equities did 23.9, so a pretty strong up year and still stocks, our benchmark at 24.22%. So that's our biggest asset class, and it was under by about a third of a percent versus benchmark last year. Um, Jim will go through that in his Deputy CIO report, but we've been stepping down tracking error as we've discussed. So I mean, in a way, the silver lining is that we underperformed, but it was limited to 30 basis points.

Like 2 and 3 years ago, we had got our factor bets wrong and we underperformed by 200 basis points. And that was much more difficult than what we had last year. Um, but we're still looking at everything and we're going through the portfolio and seeing what's working and what's not. An observation that we have is that our lineup of active managers— these are external managers that we've hired— have generally beaten their benchmark. Net of fees.

And then when you add up all their mandates, which reflects our factor positioning, we have more non-US managers and the benchmark reflects more small cap. Those weightings have been generally what's caused us to underperform. And I attribute it largely to investment calls that were not correct. In Juno. But another aspect is just that the benchmarks themselves, like, don't add up.

So public equities total is up against MSCI All Country World Index, and then we've got individual managers in the US managing against, for example, the Russell 2000 or the Russell 1000, which add up to our benchmark but not precisely. So we're taking in these non-manager factor bets over time, reducing them so when we get them it doesn't hurt us as bad, but we also want to in the future get manager benchmarks that roll up to ours so that if we, if the managers beat, we beat. And that's something that I'm going to talk to the benchmark committee about. And we're moving much more towards relying on outside managers that have a track record versus the calls that have hurt us in the last few years. So just, yeah, just, Tom, I wanted to stop you from beating yourself up anymore because, I mean, it's hard because public equities is the biggest part of the portfolio and when it underperforms, it has an outsized effect on the total performance.

But I would point out that despite the fact that you're behind the benchmark over those time periods, you're generally in the top half of all of our clients over those time periods for public equities. So you're suffering from the same basic thing that everyone else is, which is mostly in the US. Uh, it's just such a concentrated market that it's very unusual for a client to be overweight, uh, the AI stocks in particular. And it was the Mag 7, you know, which is part of that. So while, uh, it's never good to underperform your benchmark, the benchmarks are remarkably like We've never seen anything like it in terms of how they've beaten every active manager.

I mean, benchmarks are literally ranking in the top quartile in public equities across the board. So it's been a very difficult time with active management. If you index the whole thing, you'd be one of the top performing equity funds in the country. Uh, but anybody who's doing active management generally has a small cap bet and has a value bet. And that's what the permanent fund had.

So while it's not great to not outperform, you did do well relative to peers. Thank you for that. Hold on, Janet, did you want to comment? Well, I'll just agree. Marcus and I have had this similar conversation.

Can you hear me? What she said is Marcus and she have had similar conversations for the record, Jennifer. Yeah, so just to wrap up the page, private income had a tough year last year, did 7%, benchmark 8.62%. That's probably the most— that's a more interest rate sensitive area than private equity. And we saw some write-downs in some of the— like renewables in infrastructure is the most interest rate sensitive.

It's like these solar farms that are basically 20 years of cash flow to come back, you know, on a 5-year or 8, 9 versus the benchmark's 10. You know, then on a strategic basis, the thing we're doing in private income is focusing on, on private credit, which is 40%. We're focusing on more senior loans. And more conservative, less exotic funds as the country could. There hasn't been a default cycle in private credit in many years.

And so we're focusing on quality and a portfolio that will weather if there's a recession or default cycle, will, will do a little bit better. And then private equity had a strong year last year at 10.5%. Return, the benchmark did 10.6%.

On a longer-term 5-year basis, 6.5% versus benchmark 7.8%. I think private equity is probably the area with the biggest range of benchmark results. That's the area where— another area where if you look at, I think, correct me if I'm wrong, Greg, if you look at like the median Calendly client differs greatly from the Cambridge private equity benchmark that we have and measurement's a little more flattering, um, for this portfolio. But, um, we've had good recent realizations. One, one possible near-term realization is Anthropic, where we had invested $50 million about 18 months ago at a valuation that's much lower than what they're talking about on the IPO.

Um, so we have a lot of momentum in our private equity portfolio. We have a lot of cash coming back, which is unique in the industry. And I think strong results, but against that Cambridge benchmark, a little lower than average on that basis. And if you look at many other private equity benchmarks or measures, we're above. So kind of a mixed bag and a potpourri of things that we're focusing on that I just thought I'd try to summarize on one page there.

Yeah, Marcus, I'm going to put my vice chair on the spot because he's taught me everything I know about renewables. And I guess I, under the private income, I understand your statement about idiosyncratic write-downs to certain large renewables, especially as interest rates have gone up. But I'm— and I guess even with rates continuing to go up, we're likely to see that. But where I'm perplexed on it is the digital infrastructure Is that data centers, etc.? What does it mean by digital infrastructure there?

Because that's—. Ross is here and he can probably talk more. I'll be parroting a conversation I had with Ross like a week ago and I'll let him do it directly. And Ethan, I hope I didn't misrepresent you, but you've taught me a lot about, you know, a lot of these renewable projects depend on The tax benefits that they've had as well as the rates of return are impacted by interest rates as any— did Ross want to—. Go ahead, Ross, on digital and anything you have on—.

And Ross, we'll need you to come up here just because he has a microphone. Perfect. Okay. For the record, Ross Alexander. The digital idiosyncratic write-downs that Marcus was referencing, uh, there's primarily European fiber-to-the-home operators have really struggled.

Um, so not data centers, not big broad themes. There's been some regulatory changes and then some just poor, um, management within some of our actual investment portfolio companies. So very idiosyncratic, it's not reflective of broader, uh, industry-wide digital. Would data centers fall within that? Data centers do fall within the digital infrastructure, um, bucket, um, but we have not seen write-downs there.

Those are performing really strongly. I would have assumed so. Yeah, yeah, it's—. There we had a large co-investment, um, in a German, uh, fiber-to-the-home operator that was written down to zero. And is that— is fiber-to-the-home failing because of uh, our friend Elon Musk and his mini satellites everywhere, or— No, um, that's GrowGFI.

There's factors with Germany. There was poor, um, on that business, there was, uh, bad assumptions around penetration rates and take-up rates from the subscribers. There was some regulatory changes that impacted the direct business plan of that company in particular. And then the bigger— yeah, Germany has a lot of issues right now. Their economy suffered, so the adoption of fiber to the home and transitioning from like a legacy copper provider for internet, the assumption was that they would have greater adoption of that by the subscriber, and it just has not happened, largely because of German economic problems.

And we're out of that investment now? Unfortunately, yes. And I say unfortunately because it was written down to zero. It's long way.

Thank you. Thank you for the answer. Yeah, one other, like, hold on, Ethan, did you want to say, or Lisha, did you want to say anything else on the renewable? Yeah, like just one other, just the anecdote on an individual company. In 2018, we made a co-invest investment in a Southeast Asian renewable developer, and, um, it's been very successful.

We co-invested like $100 million. It performed well. It got written up to over $300 million in the, like, 2021 timeframe when rates were like zero, and it is interest rate sensitive. And then last year, the manager went to sell the company, ran through the fund, the co-investment, and he got disappointing bids and, and wrote down the investment to reflect those disappointing bids. So now it's like $250 million, and it— but it didn't want to sell on that in a week process.

Hold the process. Just like last week, we pulled a big real estate sale where we got disappointing bids. So you're not like forced to sell, but we got this huge write-up in 2021, the year that we had like home run results It's still a very strong investment with $150 million of gain, good IRR, but it got written down from where it got written up when rates were zero. So that individual deal I just mentioned, I think was our biggest write-down in private income last year. And so it's tough looking at private market results year to year because you get these lumpy write-downs.

Or write-offs on what could be a good investment, but just in this one 12-month period, a very negative investment. Is there a need, Marcus, for— because both of the instances that, that Ross and you just mentioned are non-American diversified assets, obviously, but a lack of understanding of foreign markets. Do we need additional staff expertise to be able to make sure we're preventing similar situations in the future, because we're not hearing about that type of thing with our American investments. And so I just want to make sure if we need additional staff capacity to bring that expertise in-house because we have had large write-downs in both spaces, should we pursue that? Well, in the, in the two examples we just gave, one kind of very successful investment and one was a wipeout, a bankruptcy.

I don't—. I mean, we're leveraging the— we're LP in the manager fund and then we're co-investing. I think we've got the staff to assess those types of co-investments and feedback on the managers. And just that's why you have a portfolio, is some work and some don't. No, I, I— and I get that it's a—.

It—. The one in Southeast Asia was a large return, but it was still, you said, the largest write-down that Oh, just in the last year. Yeah, correct. And so, like, I don't know if that's something we could have staffed to have gotten out of, or if that's, you know, if we're stuck in it. Anyway, just something I want to make sure you made that investment.

I still would make that investment today. We don't control that exit. Like, we have tag-along rights, we access when the manager exits. I mean, we had— if you look at our direct investing track record, our biggest home run were probably 10 years ago when we had a smaller team than we do today. I don't think it's actually the team size that would cause us to pass on that fiber to the home deal.

I think it's just if you do 20 private equity deals and then rates go up hundreds of basis points, like something breaks and that fiber-to-home deal broke. I bet if rates were zero, the fiber-to-home company would be still laying fiber, but they had to refinance a capital structure in a very different environment. They missed their business plan a little bit. So I mean, that's my take. I mean, if someone were— someone could make the argument that a bigger team would help, would help.

I'm making the counterargument. I mean, the Canadian plans have the biggest teams that are putting up some of the worst results in private markets right now. Um, so it's not universally true that like big staffs result in mistakes. I mean, good judgments result in, in good outcomes. And so I don't know, I, I think our team has good judgment.

I think Ross has good judgment. I think that was just a one, one deal, and, and that'll happen in a portfolio. But I'd rather have a small team of people with good judgment like Ross and a team of— I mean, I guess in a world where you have 100 people with the best judgment, that's the last outcome. So I wouldn't be against adding people if we can maintain the quality that we have today. Thank you.

And that concludes my report. Trustees, any questions for Marcus?

Thanks, Markus.

In another 15 minutes, Kallan. And Sebastian. Sebastian, you get us back on track.

I think Sebastian has saved us more time in the history of his reports than any. Welcome, Sebastian. I hope that's a compliment. No, it for sure was. It for sure was.

Good morning, uh, Chair and trustees.

Uh, for the risk and compliance, uh, So in today's risk and compliance section, we've got 4 parts. The second and third parts are the regular risk metrics updates and the compliance updates. The first part, we basically are revisiting the risk appetite measurement process specific to private equity.

Just to refresh the trustees and everybody else in the room in terms of how the risk appetite computation framework worked as it is. So the current framework was approved in 2021 by the board, and the key aspect I'd like to emphasize on today is how private equity was computed. And for private equity computation at that time, the board and all stakeholders felt that the risk model estimate for risk of private equity was excessive. So what we did then was to haircut or make a manual adjustment outside of the system by reducing the Aladdin output of the risk estimate by 25%. So essentially what we did was to assume that Priority risk estimate that systems produced was reduced by 25%.

And that's the current policy that the board has, you know, had approved in 2021, and that's in play as we speak. And we report our risk posture against the risk appetite every quarter to the to the board based on that one assumption, plus, you know, the all the other assumptions within the framework. And what's happened over the last 3 to 4 years is there's been changes in the model in terms of two, uh, aspects. One is that there's been more granularity in terms of how private equity has been is assessed. So the data that comes in today is, is much more granular than what we had in 2021.

Back in 2021, the Aladdin system used to take private equity at the fund level. So we just had the GP fund level investment number basically with no granularity below that. Since 2022, We onboarded the eFront system within Aladdin where for each fund that we own, we have company-level information. So there's been significantly more informed risk estimates that have come out. And more importantly, there's been a change in the modeling of private equity by the system.

So Aladdin or BlackRock has basically revisited the concept and remodeled private equity, which basically has resulted in private equity's risk estimate reducing. So the graph on the left side tracks private equity standalone risk over the last 4 years. The red line is the private equity risk and the blue line is the public equity risk.

I think what's important to note is over the last 4 years, there's been a steady decline of private equity risk estimate, uh, uh, versus public equity risk estimate. And as of now, they're both sort of almost at the same level, a little 10 basis points difference in public equity risk versus private equity risk. Now we can talk about whether that's sort of intuitive or not as a next step. But the first point I wanted to highlight was we are actually, as of today, even after the reduction, haircutting private equity risk. So we are saying, okay, if a private equity risk is 100, which is pretty close to the public equity risk of 100, we are taking, we are doing a manual adjustment outside the system to say, Private equity has to be reduced by 25% for our risk appetite framework.

Vice Chair Chatz.

I am— I am—.

Okay. I was going to say I'm struggling with the graph on the left, but apparently I was struggling with the button to turn on my microphone also.

So I am struggling with the—. Graph on the left that show—. Seems to show that the standalone risk of these two asset classes has converged and is effectively equivalent at this point. And I just don't understand how private equity in the model has—. Would seem to have more interest rate risk given the model's use of—.

Heavy use of debt as well as another layer of fees on top of your management of a public company and how with those two realities the risk of these two asset classes converges to be equivalent at this point.

Yeah, Kasi, sure. I mean, we have same sort of confusion in our minds if that's a consolidation. I mean, in the sense we push back hard against this changed methodology. Darren, Marcus, me, Val, and all of us had multiple calls with these people to basically say, is this— Exactly to your point, I was going to come to that aspect. You know, after talking about the graph on the right, so it was not just standalone, not just standalone risk that reduced or converged to public equities.

Also, if you look at the graph on the right, the correlations between public and private equity actually just fell off a cliff. I mean, in, in, in quantitative terms, which basically means it's not just the standalone risk has reduced, but that the overall risk for the portfolio, including public and private, has also reduced.

Now, declining correlation means that more diversification benefit. And so adding on private equity today to a portfolio that already had public equities would be more diversifying, is what the model, model sort of spits out. Now, Sebastian, so this is BlackRock. It makes this, these numbers, right? Their system.

And BlackRock has famously made a lot of investments into firms that offer private equity investments to clients? I mean, you can't answer this. Yeah, I don't want to answer this. Thank you. Because what this does is it makes private equity look more attractive relative to all the other asset classes in this optimizer that the whole industry is using to make asset allocation decisions.

So I don't know if there's like a conspiracy theory behind all of that, but I mean, a lot of people that we talk to, Marcus included, have observed that valuations on private equity are at an all-time high relative to the last 20 years. Uh, there's a lot more debt, you— there's a lot of risk of implementation mismatch. I mean, Permanent Fund has done a really good job. They got a big giant diversified portfolio. If you look at a lot of our clients, their returns look nothing like permanent funds returns much worse because they've just made a bunch of mistakes.

And so that risk is not captured, I don't think, in here. The liquidity risk of, you know, hey, we took on too much private markets and we need to get rid of these things right now because we need cash, you know, that's not a risk that's reflected in here. So I'm just going to go on record as being very skeptical of the convergence of those two lines, especially given the way the market has evolved. Yeah. Thanks, Greg.

Follow-up with Vice Chair Shannon.

So ignoring the possibilities of manipulation or conspiracy theories, you know, as a corollary, is it in part a lag, a timing lag where, you know, they're reporting lags, but also they control certain outcomes that lag by holding assets that are underperforming at this point much past— like, I just saw a report today that 40% of the total PE assets has been tied up in portfolio companies that have been held for in excess of 7 years, which breaks the model really, right? So there's—. I wonder if there isn't a causation issue in the timing, not just correlation issue in the time remaining. Absolutely, Prasish. So I would, I would sort of comment on that piece, but I think it's, in my view, less a lag issue, it's more of a fair value issue.

So if those 40% of assets that have not been liquidated or funds that have not been closed in excess of 7 years had actually marked their books to fair value, then that volatility would have been reflected in these numbers. So there is a smoothing effect inherent with private equity, which the model had in the past, actually, be smooth and had added on a levered aspect to it, which they seem to have reversed. So I'm not, I'm not going to go into why they did that. We've, we've gone on record basically with the team and I had, you know, all, all, all our team members, senior staff, basically highlighting this issue to them. And, uh, we pushed back the way we could.

I mean, that's a model change that they have, and we want to understand why. We've still not understood why that's changed. Uh, they've talked about granularity of data and a smoothing effect of private equity, uh, mark-to-market. So To your point, absolutely, uh, I think what you've highlighted is a key aspect that always look at as to the more the older funds is continuing to, you know, uh, keep their assets, not exit. So it is actually contrary to the very model of private equity.

Uh, it's a more of measurement, uh, maybe I should use the word flaw or, or, uh, you know some deficiency that public and private equity can converge because it's conceptually private equity is levered public equity. The leverage component is not reflected in those two numbers. Sebastian, hold on. We're not able to get either of these microphones working now. Are there too many on?

Might that be the—. There's some—.

Hello!

Oh, hey, thank you! We got Ethan to fix this one. Um, We just made a major move as trustees with our asset allocation, following up on Vice Chair Schatz's statement, to increase our public equity component significantly and decrease our private equity with a different foundational analysis that was presented to us. And now they're being shown as equivalent risk. Does staff feel like the recommendation that they made to us remains consistent in light of the information that we're presented with today?

Well, absolutely. I don't want to speak on behalf of Marcus, but what we talked about so far is that this risk measure may not be accurate. So we believe, or we continue to believe, that private equity as an asset class is inherently more riskier, of course, with probably a higher target return, but is a riskier asset class. And, you know, to the dimensions of risk in terms of liquidity or, you know, the current state that asset class is in, we've, you know, continued to believe what we, you know, recommended in the past as— I mean, this— these two don't contradict each other. So what we recommended earlier, this year, calendar year, which is what, what I'm showing now, is, is actually complementary in a way, in the sense what I'm going to propose, which I haven't yet, but is, is that we need to remove the 25% manual outside of the model adjustment that we currently have in policies.

You can basically say the private equity risk measure that we have today shouldn't be reduced. And so if I bring that back into the optimizing aspect of it, that would inherently reduce a potential allocation to private equity. I understand that. I'm still wary in light of what Ethan and Greg what you just said, obviously, like, with who's driving it and what might there be some— I mean, BlackRock might have some ability to influence where they want the puck to be rather than where it is. But I'll let you continue, but it's— thank you, Vice Chair Shep, for pointing that out and Greg for your follow-up comments, because I think it's something to pay close attention to.

Go ahead, Devin. Thank you, Mr. Chair. So I mean, the manual adjustment was at the directive of the board to somewhat de-risk private equity relative to public equity because of the perception that BlackRock was overestimating the risk associated with private equity. So that was something that historically was implemented by the board.

So as you're discussing this, you could consider the opposite of that, that maybe is that BlackRock isn't adequately identifying or allocating risk to the asset class and have a manual adjustment the other way. So it's food for thought and maybe something that Sebastian can give some thought to, too, as far as when there is a recommendation to the board, would there be just a reversion to no adjustment no manual adjustment or a reversion to, or an adjustment to the adjustment to make it actually the opposite of what it was historically. And I don't know the answer to any of that, but it's certainly something that we should consider. Yeah, my—. Thanks, Devin.

My memory is actually bad when that Board recommendation came. '21, February '21. So that's why, because I wasn't here. So And was that endorsed by staff?

So the risk appetite policy process took about 18 months of interaction with the board, and it was consistently sort of— the feedback we got from the board was that private equity risk estimate that the model produced was excessive. Uh, so I've got presentations that we've made where, uh, I, I, I would say that staff felt at that time that the model estimate was appropriate and it was in line with some of the other estimates. Like Callum's estimate for private to public multiple was exactly what Aladdin had at that time, was also in line with with the Basel Committee's, uh, estimate of private equity versus public equity, and was also in line with— if one of the analysis we did at the time was to look at the Russell, uh, 3000 versus the 2000, which had a similar sort of public-private— you could call that as a proxy in some ways. And that was also in line with what system produced at that time. So to your question, uh, Chair, uh, I probably want to record to say that, uh, you know, staff felt it was appropriate, but maybe the board, uh, variety at that time suggested we made that, you know, make that haircut.

And that's been in place for the past 4 and a half years. And what I'm suggesting today is that we remove that haircut is, is, is where I'm coming to. Back, back, back to your presentation. Thank you, sir. Thank you.

Trustee Samuels. Thank you, Mr. Chairman. I hate to beat a dead horse here, but, um, could you go back a slide, Paul? So, um, I agree with the chairman. We went completely— if you believe that graph, we went completely the opposite way what we should have done.

Callan says they don't fundamentally don't agree with it. I'd like to know what Janet's view, because we just fundamentally went the wrong way, fundamentally at the last meeting by switching out of private. One point just to point out, when we do asset allocation modeling, we use Cowen's Capital Market Forecast, and that's the next 10-year expectation of these items. The BlackRock, like equity volatility, that's the actual trailing volatility of equities. And then they don't know the number on private equity that if only you mark their portfolio correctly.

So this model that Sebastian's talking about, we use for day-to-day tracking of the portfolio against the compliance framework in our investment policy. And Cowen's— Cowen Market Forecast for private equity haven't changed that much in the last 5 years, while BlackRock's has radically changed from like, like 70% more risk to equities. Now it's the same risk. And it's like when you fundamentally move a metric like that dramatically, it means you're like internally struggling with what are we even talking about? Like if you read the white paper from BlackRock 5 years ago, totally different methodology from today.

And there are people that look at that and think it's right. There are people that look at that as wrong. On Cowen's Cowen's market forecast, the same methodology over time. If you, you look back over time, it's generally been accurate forecasts for things like stocks and fixed income and alternatives. And like, that's what we use for asset allocation.

So I don't necessarily think that any input into the discussion we had on asset allocation has changed. It's just frustrating that our risk system that we use to monitor the portfolio against compliance rules, like, it's just dramatically changing. And I happen to not believe that that's valid. That's my judgment. But like, I don't know, someone could 5 years ago, they had PhDs from MIT at BlackRock that wrote like thick white papers on why that was right.

And then those guys that thought private equity had a lot of risk, they all got fired. And they have new PhDs from MIT that think private equity is not a lot of risk. And they write thick white papers that say it's not risky. And that's what happened. But the asset allocation didn't change.

Modeling didn't change. Why I loved being an economics major, because whenever it did meet the models that created a new one. It was always frustrating to me. Go ahead, Janet. The only thing I have to add to this conversation is that you're looking at an absolute versus relative here too, that when these two volatilities approach each other, it affects the relative risk between two asset classes that are both equity-based.

The one to me that seems even odder and bigger is the correlation change, which actually impacts the calculation of your total fund risk because you have a bigger diversification now assumed between private equity. So to me, that is kind of the bigger issue here rather than the convergence of the risks, because that's kind of equity against equity, but that's your total fund calculation impacted by the correlation. So I think that's a different whole thing that you kind of have to deal with now when you're dealing with compliance, is it's changing the absolute risk at the total fund level. Vice Chair Schatz.

Working.

So whenever we look at two asset classes, I mean, we're focused on private equity, but could this be the result of the concentration of the public equity markets into very few mega stocks?

Is that, is that what's contorting the numbers from risk? I, I would take a cut at that. Just the blue line is the risk of the public equity markets, right? I can't see that really well, but that hasn't— anything that's stayed the same by BlackRock's estimate, right? So it's just this orange line that's come towards it.

And I, I haven't read these, these thick white papers, so I don't know Oh, some of them do. Some of them do. A bunch of equations.

Yeah. But I, so the practical, let me see if I understand this. So, so the practical impact of this is that when you are measuring, you're coming up with your dashboard of, of risk. Now, if you're overweight private equity relative to target, you're less likely to be outside the bands, right? That's what it does.

It's so, so when you guys get your trustee reports about whether you're in the green or the yellow or the red, they have a lot more latitude now in theory to overweight private equity than they did before relative to targets. Is that fair? That's fair from a risk, from my perspective, but we do have the first element of And that's what's going on with the total amount. But you're absolutely right. So private equity exposure can increase.

Greg, we just literally decreased it significantly based on the recommendation of staff. And I felt like I was not warm and fuzzy with that, but I'm relying on the experts here. Like, I was very nervous about putting more into equities and like the public equities because of all of the factors I've laid out in previous meetings. But obviously that's what staff and Cal and recommended. Now we're seeing the convergence of the risk and that, oh, I mean, to Ralph and Ethan's points, it almost seems like it's contradicting.

I get your point and I get that staff feel differently. It makes me wonder why the hell are we subscribing to this thing If we feel differently, then by the way, how much does it cost? Several million dollars. Several million dollars. So we're, we have expert staff disagree with something we're paying several million dollars for, and we've made board decisions on asset allocations based on recommendations of staff that are contradicting something that lots of people pay millions of dollars for.

I'm not saying one issue is right or the other, but it's worth some pensive, uh, thought. I, uh, sir, yeah, definitely this, this needs more thought and, and, you know, we need to do on this much more. We, we've been doing that over the last maybe 12 months. I think, uh, the, the model that we use, the system that we use is, uh, you know, has got flaws, absolutely. But like any model, you know, this is just another model.

All models are wrong, some are useful. This is, uh, sort of code. And, and I think this is one of the few models that, uh, we've seen which basically can aggregate private and public, uh, assets. So despite its flaws, I think it's still a good model. I'm not wedded to any specific weather models where we looked at, you know, the spectrum of available models, and this is one of the few that's got the data basically like it's bought different.

And so all private equity data is coming in. And just to, on that point, to, to sort of respond to your question, Prashisha, about, uh, is it the Max-7 that probably impacted the correlations. It may be, but it's also probably because of the more granular data that's available today. And what the model has estimated is that at a company level, there's a bit more of diversification. And so to back to that point, that, that is a very, uh, significant and impactful aspect of it, just as much as, or probably even more, in terms standalone risk.

And I'm sort of mixing up a lot of things here, but back to your question, Chair, uh, I believe that the model that we use, the system that we use, is, is a good one. Uh, so again, that's just as of now. We probably need to think more about it. We need to review this better, and we will look at other models available in the market, uh, in in terms of, you know, how good they are, how accurate their values are. In the end, this is, this is all post-factored to some extent.

I mean, these are our estimates based on certain volatilities of the past, and, uh, I'm, I'm, I'm in favor of quantitative methods up to a point. I mean, it has to be layered with qualitative estimates, and that's what we've done in our asset allocation process. I can assure you, and you know, we, we sort of, uh, discussed that length before we came to the board with those asset allocation recommendations, uh, and that they don't actually— I mean, seems like they do contradict, but it, it does not. I mean, I think that's the way we looked at it. We, we go back and look at it again, uh, but again I'm just going to come back to my haircut request here, basically, which is— which sort of summarizes, uh, uh, you know, this, this graph or this page summarizes it.

I've looked at 2022 versus current 2026 multiples of private equity, uh, sorry, yeah, private equity risk to public equity risk. And, and one nuance that I must add here is that Uh, these risk measures can be made based on different historical datasets, and, uh, what these blue, red, and green graphs sort of denote are three different historical datasets. So if you, if we use 10-year history versus 5-year versus 2-year, they have different risk measures, obviously. Uh, but in all those cases, we've seen a sort of significant decline in public to private equity risk measure, the multiple itself. So back in 2021, when we got the board to approve the risk appetite, it was around 1.7 to 1.8x.

That is, public equity was 1 point— or private equity, sorry, was 1.8 times as risky as public equity. When we did that in 2021. Today it's about 1.3 times. And what I'm suggesting, or what I'm recommending as a proposal to the board, is that in 2021 the board approved a 25% haircut, which meant it went from 1.7 or 1.8x to around 1.3x. And today's actual is 1.3x.

So if we apply another haircut over that, it becomes 1 or slightly just below 1x, which means private equity risk would be less than public equity risk if we applied that adjustment. So what I'm proposing is we remove from the policy, uh, framework manual adjustment that we have in place today. And this is not an action item for today. Uh, we discussed this internally and we thought, you know, we should sort of review it further, uh, and we come back to the board probably in, in February with an action item request to remove the haircut from the risk appetite policy framework. So couple questions.

Thanks, Sebastian. Uh, first, just the high-level one: why not today? I just thought we'd sort of keep reviewing it for another couple of months and bring it back to the board. Uh, I mean, I'm happy to take it up today, but I didn't classify this as an action item. So I don't—.

I mean, correct me if I'm wrong, counselor, that doesn't mean we can't take action on it, correct? You can—. For the record, Chris, you can amend the investment policy today by a motion of the board. Or we would then follow up with effectuating the changes after the fact. Of course, the board— I'm not recommending it necessarily.

I'm not not recommending it either. But I— follow-up question, like, it seems fascinating to me, having not been on the board, so I might defer to Vice Chair Schutt if he has recollection, that a board would make a recommendation that didn't necessarily originate from the staff? And to that end, how has it played out? I've been on the— I've been a trustee for however long, and I've never even heard about this haircut that was done from 5 years ago. And if I did, I forgot.

So I'll, I'll take the, the fault for that. But what, what is the impetus impetus for— I mean, other than the fact that it's at 1.3 today, which is what we took the haircut to then, what's the impetus for this coming today that hadn't come in the previous 5 years? And how did that recommendation impact returns? Oh, so your first question, I mean, why are we bringing this up now and not earlier? Last year or the year before, yeah.

Yep. So the last model change was actually I go back to the correlation chart. So the decline that we see there in the correlations, it has been more recent for the last probably 2 or 3 quarters. And I don't know if it's appropriate to say that's the straw that broke the camel's back sort of thing, because we've seen this decline happening and models always change in terms of the data inputs and, you know, the market data that, that's, that sort of feeds or informs the models. And, and I think it's not prudent to keep changing policy, uh, uh, decisions, uh, because like in 6 months, like, uh, if it changed back, you know, it wouldn't be appropriate.

Now we've tried this for the last 3 years basically and there's been a consistent decline. We've gone back to BlackRock, had discussions with them, which basically has informed me that this is more of a conceptual change, that they, they tweak the model and they change the model. So it's not just data inputs. And so that's why we brought it back to the board today. I mean, did I personally— I was of the view that what the model produced back in 2021 was accurate.

So, but again, Board in its wisdom did that, and I think that's why, you know, the Board exists. I mean, like, we could make recommendations which are not appropriate, or the Board thinks differently. Happy to, you know, sort of comment on that. And it did—. I mean, it was not like, you know, I knew for a fact that, oh, we need to go back at the risk estimate was accurate.

These are all estimates, and the board, when they did that back in 2021, felt that, you know, a 1.8 times multiple for private equity was not appropriate. And so they made that decision. I mean, and, and it played out like the board— I mean, it sounds like what the board hypothesized ended up happening, uh, in terms of the risk measure. Yes. In terms of actual risk, I still believe the 1.8x makes total sense.

If you ask me personally, my personal view is the risk estimate of private to public is at about 1.7x. They're saying it's 1.3. Yeah, that's not where I would assume it is, but then again, they're not, uh, BScs from MIT, and again, that means nothing. I mean, it's MIT people. Like, I trust someone more from Stanford and Colorado State than I trust someone from MIT.

And to that end, I'll give my vice chair, who was here at the time, the last word on this, because I— like, and you're, you're a mathematician, and like, I, I trust you more than I trust MIT. Well, I, I, my remembrance of how it went was it was more intuitive and not whiteboard, not data-driven, certainly not model-driven. I do think that the, the nature of the data as well as the models themselves have changed substantially from '21 to '26, and so that is a— it's certainly a piece of it. And then one thing to always keep in mind with these extremely complex models is the assumptions start to drive outcomes. That's just the nature of very complex models.

And so without the ability to understand what the assumptions are behind it, I think, you know, we revert to sort of intuition and like Sebastian's intuition that the risk multiple is actually, you know, significantly higher, more like it was circa 21 when, when the board acted last time. And my, I guess my closing comment on this is I appreciate the robust discussion and the obvious amount of, uh, interaction analysis that's gone in at staff level. I do think it's important for us to act. I would prefer to act at the next meeting, not, uh, in February, so we can evaluate the staff recommendation out of deference to your expertise and level of effort here. Um, but I don't— I do think that if we think there's a problem, we should push it up, um, one cycle to December, not wait till February.

I think that's good counsel. Any other thoughts from trustees?

And just for reference, Chair, we've got the 2021 board approval pack. I think you guys have to mix just, just as a backup on what was decided at that point. I'm not going to run through that, but so moving to part 2 of presentation It's all the standard risk metrics as we produce every quarter. The first chart is on realized fund volatility and Sharpe. Thanks to Janet, we put that note up here which sort of highlights that this is not a measure of risk, this is more volatility of realized returns for the, for the, for the total fund.

And then we call that broken down by asset class volatility and Sharpe. Now the only difference between that chart that we just saw, which is this, is this is as of date snapshot as of June, June 30th, and the other was a rolling 3-year number.

Uh, the chart we have is actually quite healthy. We've got a 1.3x as a doom bucket, and that's, that's pretty good. Uh, in terms of the risk metrics, both tracking error and value at risk limits are within the green zones. We did not breach them in the entirety of this financial year. And in terms of liquidity limits, again, these are just the outstanding commitments that we have for our private assets.

So we've got about $8.2 billion of unfunded commitments. So these are commitments which have not yet been paid for. I just want to highlight that, that number. It's within the limit, but that's our— if you wanted to include outstanding commitments, that's a total across all private assets.

And then, uh, I got this chart which basically looks at multiple stress scenarios. I'll just put the last one where basically we looked at the GFC and repriced every asset in our books, uh, and, and the benchmark. And the orange line is the benchmark. It's sort of in line with the benchmark, which is about a 40% decline. So if the GFC were to happen again, we should expect a decline in our total asset value of around 40%, in line with the benchmark.

So I don't know if that's a consolation, but yeah, that's what I'd say. Um, and then these are just breakdowns by currency and country as of June 30th. And the final sheet on this section is the risk dashboard, which we sent out to all trustees on on a daily basis. It's a sort of snapshot per day of our risk exposures.

Part 3 is again the regular compliance monitoring update. What we have on the first, uh, couple of pages is the different, uh, regulatory and counterparty compliance requirements that we met, including the SEC filing, for example. And then the following pages are basically a snapshot of how we, how our exposures, how our guidelines have been monitored against actual exposures. And they are all in the green zone, so which means we've been in compliance with every single aspect of the investment policy statement. That is a full list.

I'm not going to go through the entire list, but that's every single aspect of the industry policy guidelines that we've looked at.

And then I've got a fourth part this time, which is just a brief update of two aspects. One is on the business continuity and disaster recovery process and framework that we have at APFC. Scott, we'll sort of elaborate on this at a later section, but we did actually overhaul the ECDR policy. Primarily from a perspective, we moved from Fairbanks to Anchorage, our ECDR site. It's been functional for over a year, but we, we just recently updated the policy because there's been a lot of IT infrastructure changes.

There's been a new communication policy that's been added too in terms of Crisis Communication, thanks to Paul and team.

And I must add that this is sort of a collective effort within the organization. IT does a lot of the work in this, HR, Communications, Admin, all are part of the BCDR committee that we have. And, and of course, Risk and Compliance also plays an important role. And finally, just an update on the Risk and compliance team. Sarah, who has been with us for 6 years, was our senior risk and compliance officer, desired to leave to another organization, and sorry to see her go.

She's been sort of instrumental in TCR policy development. She was actually key person, fine person there. And also in the compliance monitoring. She said, look, that she developed the entire framework for that. Uh, unfortunate to see her go.

Uh, she was with— she was in person at Zulu for the first 3 years. In the last 3 years, she's been working remote. But again, uh, we wish her the best, uh, and we will start the hiring process ASAP. Thank you, Sebastian. We wish Sarah the best.

Having two meetings in a row where the two ICs from Val and now Sebastian, we're losing that institutional knowledge, and obviously succession planning is incredibly important. So I'm obviously sad to see Sarah go. I was sad to see else team member leave. Sebastian, what's the size of your team?

With Sarah leaving, that's 30%, 33% leaving. So there's 3 of you. Yeah, there's 3 of us. And yeah, well, that's, that's, uh, I, I don't know if it's a trend, but it's 2 meetings in a row where we are losing key people. So I, I think we should hopefully do exit interviews, figure out why they're leaving, figure out if it's, uh, compensation, if it's whatever it is.

Um, and we appreciate Sarah's efforts, but it's, um, you know, I don't like seeing, uh, those, those type of exits, but I, I understand they're going to happen. Um, And then obviously timing, there's, is it out for recruitment now or it's going to be? And was there issues with, is this one of those things that the Governor's Office didn't have to bless anymore but they will have to bless when we decide to hire? The last part of your question, yes, it will need to be approved by the Governor's Office because it's a physician that is above a range, 22 equivalent per state service. As far as the— it was in the HR report, the— we're initiating the recruitment as soon as it's cleared.

So we were in the process of asking the governor's office for approval to recruit. That's now off. One of the things that we are discussing is, again, being strategic in our backfilling of that position, ensuring that we get somebody with with the appropriate skill set and experience to be in a more senior role right away, because I think that's what the organization needs rather than somebody that we would train up. Yeah. Because of succession planning within our organization.

So we'll, we'll be going about the recruitment, more thoughtful process, and hopefully able to find the right candidate. I mean, Sarah leaving, it's a small organization, and so if somebody wants to advance to a more senior role and we have 3 positions you've got very, very limited options. And, and I mean, if Sebastian left and Sarah wanted to make a run at his job, it would have been— I'm not sure that she would have gotten it. I mean, she's kind of in a tweener category where she's got 6 years of experience, not 15. Uh, we rely on Sebastian very heavily.

He has—. That position has to be held by somebody that can have credibility with the investment team, and that's, that's a heavy lift. And so it is, it's a different challenge. And so Sarah looking for opportunities, I don't blame her at all. I agree.

That's life. Jackie leaving because she wants to have a family, that's— can't compete with that either. I mean, that's her wanting to have a little bit different direction and do something different for a period of time. Maybe she'll come back to us, hopefully. Maybe she's listening.

But yeah, no, it is a challenge and I know that that this is a trend. I mean, it is a trend of two of people transitioning away from the company, away from AABC, but we'll do our best to find the right people to keep the organizational goals as we move forward. Yep. And I think obviously, and this is something that all of us have said, but most recently Ralph, our Trustee Samuel, has said that it's a basis point or it's less than that when we're talking about the staff that we have and the importance. I mean, we're a lean, mean fighting machine at 65 employees going up to 75 or 85 to be able to continue to build that in-house capacity for when Sebastian wins the lottery or Val, whatever.

I mean, like, we want that key person risk is vital when you only have small teams 3, when you lose one person, that's huge. And so it's, it's something obviously that I think we should consider, continue to contemplate, especially given the importance of the Permanent Fund to the State of Alaska with our budgets having— if we grew our staff a little bit, I'm not just for growing for the sake of growing, but that institutional knowledge that we're going to be losing with Sarah's departure, that's not insignificant. And, and I don't know if more people is the answer, but like, just want to make sure that we're constantly contemplating that. Sebastian, I have no other questions for you. Does trustees have any questions?

I do have a statement that I would like at the December meeting for you and Marcus to come back with that was made by Marcus, and that was regarding BlackRock. And his statement was, I don't know why we're paying it either. I would like a recommendation from— I would like a recommendation, uh, from you all because you have different perspectives than what BlackRock has. And if we're paying that amount of money for, uh, for a service that we don't necessarily agree with and we're doing in-house, I get it that it might be a good data point, but please reevaluate or evaluate whether or not maintaining it. Like, we don't use BlackRock for asset allocation analysis.

We don't use it for portfolio. It's a risk system. And so it's like his vendor and I threw a stone at it because they're BlackRock. But like, yeah, there's other vendors. Please have a conversation about it.

We'll look at that and come back.

Thank you. Any, any other questions? Trust Vice Chair Shen? Just a closing comment. I, you know, I really appreciate the thoughtfulness and depth of your analysis here.

I appreciate it. Thank you. Yeah, great, great job to all staff, Sebastian, Marcus, and Devin. We are early right now. I'm going to ask Devin what his recommendation is.

Should we— half hour or so ahead, should we continue on? I don't know what the status of lunch is. Um, or if we should continue on till 12:15 if community members are coming. I'm looking to Jennifer or council. Yeah, we don't have lunch yet, so we could, uh, consider seeing if Jen wanted to provide her comments now for a period of time, uh, or obviously Marcus, Sebastian are both here, and we could do the investment policy update.

Maybe that one makes more sense. It's like slated for A half hour.

Yeah. Why don't we do this? Let's do that, but because I've seen people getting up for a quick break, let's reconvene at noon and then we'll—. Maybe it makes more sense then to have Jan's call since it's—. Well, unless, I don't know, is it a half hour?

It's a half hour. Schedule, but it might— it's probably less than that because it's really just saying, here's— we did what you said, here it is, you approve it, right? Okay, well, why don't we—. Why don't—. Just because I have, I have half of the trustees that are going, uh, to, uh, facilities, so let's take a 5-minute break and then we'll figure out whatever you recommend after that.

Okay.

Hello to— back on the record, and we are going to— Janet always knows she has the opportunity to give comments, but we're going to leave that opportunity.

Okay, poll 7. Thank you for the patience of everyone online. We are going to go to Marcus and Sebastian for our investment policy update. Gentlemen. Thank you, Chair.

So we've got this policy update just as a formalization of the process. The policy was actually approved by the board in, in our May meeting and has been effective since 1st of July. And during our May meeting, we had informed the board that we would come back with the actual policy document. There's absolutely nothing that's different from what we presented in May, so this is just a formalization, officialization of the process. All right, um, okay, uh, that was me.

Thank you. Okay, I think it's—. So the only change that's being effective is the asset allocation change, and this was, I just to repeat, reiterate the point, this was approved by the board in May, their last meeting, uh, and this change has been incorporated into the policy document which is being tracked in the appendix of this, uh, section. So actually there's nothing more to update the board on. Again, just to reiterate the point, it's just a formalization of the policy statement as a document.

So in short, this is the lawyers telling you to do something that we've already done so that we can do what we've done since we've already done it. Is that accurate?

Chris? Yes. Thank you. Thanks for that formal opinion. I will be honest, I'm perplexed as to why we need the additional vote, but if staff wants the additional vote, I will entertain a motion.

I don't know that we need a vote for the record, Chris. I just think, uh, staff wanted the board to see the language that's in the investment policy officially so that there was clarity as to what we did, um, reflect the changes that you guys did on the record. Yeah, we, we have an— we have it as an action, a public action. So I, I understand that, Chris. So, uh, let's, let's, uh, I think Trustee Rice-Churchill was about to say something.

I move the adoption of the APFC investment policy as conforming the changes we made at the May meeting. Thank you. Second. We have a second from Trustee Binkley. Is there any discussion?

Hearing none, could we please get a roll call vote?

Yes. Yes.

Yes. Yes. And with that, we have 4 votes. We need 4 votes for anything to pass. So even with them, the 2 of them not being here, that passes for the record.

Uh, thank you. Trustee Chatte, did you have something to— okay.

Janet, anything profound before lunch?

You're saying it's profound? Absolutely. Sorry. Thank you for the correction. I concur with that.

I'm joking, of course. No, I just, I thought the interesting was, the morning was really interesting and I appreciated the conversation on the REITs. I think that's a good thing for the board to be involved in. And of course that's, and I appreciate Callan's bringing up that there are two different components of that. One is that they handle the asset allocation and they are making assumptions that differ from the model that BlackRock is using with the different processes.

So it hasn't had an impact on the board's decision on the asset allocation side. I think that's an important differentiation between the risk measurement and the asset allocation that's driving the performance of the fund. I think that was an important distinction.

I appreciate Marcus's comments in terms of the changes that the board made or voted on and that the staff has implemented. I think that's really going in a great direction, especially the tracking error on the public equity portfolio coming down, toning down some of the biases has been especially recently, kind of important. However, some of those biases actually did come through for the fund, especially on the US equity side in the more value and small and mid-cap area where you had an overweight, you were able to get some of that money back. So, you know, the markets haven't given you all of that, but you got some of it back, which is, you know, an improvement. Fixed income team continues to do a great job.

I mean, we saw their box green The absolute return portfolio has done a great job too. I mean, those have been great performers, both absolute and on a relative basis. The remaining work that needs to be done is kind of the public equity, real estate, and private equity, just sort of the changes that, that asset allocation changes and restructuring of those portfolios. So all of that seems to be making a lot of progress. When I reviewed the materials, it was clear to me that the efficiency with which staff implements the board's direction is high.

And in terms of the fees per unit of staff time and staff salary and the cost of managing the fund, seems like we've been able to get a lot of efficiencies, especially with internal management. So those are all kind of, I thought, important highlights of the beginning of the day.

Any questions for Janet?

I have been given strict— thank you, Janet. And obviously, as always, please do feel free to chime in throughout any presentation that's given, but it's always great to have you. And just for the record, I'd like to say that we miss George, wish he was here, and our thoughts and prayers are with he and his family, and wish our best if John's listening as well. To him. It's always good to have our—.

Don sent me a picture of him sitting on the beach in Italy.

As you do.

Oh, yeah, we will send a picture of us sitting on the beach in Rome. That's a great advice here, Sean. Thank you for that. I think that's brilliant. And with that, we— I have been given strict instructions from Jeff for the launch is here.

And we will adjourn until, let's say, 12:45. Is half hour enough time or 1 o'clock? Okay. She's— I'm trying to give Callan more time tomorrow. Okay.

We will recess until 1 o'clock.

Back on the record, 106, and we are welcoming Jim Maurice for a public markets overview. The floor is yours. My name is Jim Maurice. I'm the Director of Fixed Income Investments and also the Deputy CIO for Public Markets. This presentation is going to go over the public markets, which essentially is equities and fixed income.

Okay, that was me. Now you click. So again, we're going to be going over both the public equity and fixed income. Public equities, as a reminder, is about a $32 billion portfolio, 100% externally managed, meaning we hire managers to manage the portfolio for us. With fixed income, we're close to $20 billion, and 100% of the portfolio is internally managed.

So we manage them in-house with the team of now 9.

We'll go over public equity. This, now this is fiscal year '26 performance broken down by quarter. It was a historically poor year for managers managing against their index for us, which is the reason for the underperformance.

A lot of that, Callan went over, we've gone over before, because most of the managers don't own the Fear and Greed. They're not owning the Mag 7. I'm trying to get away from that. A lot of our small-cap managers, although when small-cap outperformed large-cap, our managers would own some of the higher-quality small-cap names, and it was the lower-quality names that did really well. And so we just, they just own the wrong ones.

It's not historically normal. We've done a lot of studies, which has shown that Fuad has outperformed, or the managers in Fuad's portfolio that have outperformed perform to find and add value. We'll go over that a little bit later as to why that matters.

This is— I realized after going over these slides for the last couple years, we never actually put the performance of Public Equity in here, and I just wanted to show you that we've added this slide just to show that. We always talk about relative and everything else, but this is, this is them versus their benchmark. And you can, you can see that we've underperformed 1, 3, and 5-year, and a lot of that came from this year, and it did come from the outside manager's other performance.

So one—. Jim, can I ask, like, how is that impacted by the underweight on Mag 7? So that would be with under domestic equities, if you see that. So our domestic equities has underperformed on 1, 3, and 5-year, uh, and a lot of that has to do with that, but along with growth outperforming small cap over, over a long period. What I'm trying to figure out is, is the delta predominantly attributed to that, or is it what you were talking about, about choosing the wrong, uh, uh, small cap stocks?

What's the big delta between our benchmark And over the longer time period, it would be the factor bet. So choosing small cap over large cap or choosing EM over domestic. That's the 3 and 5-year would be that. And that's one of the reasons that we started to lower the tracking error because those are big bets that were swinging the market or swinging our portfolio versus the benchmark. And we wanted to try to get away from that.

Right now, if you start to get it down into the 1-year, then it starts to become the managers of the problem, not necessarily the factors, because the factors are a lot— the factor bets are much smaller than they were 2 years ago, which is our purpose. And that's, um, there's a slide on here that you'll— coming up that you'll remember that essentially shows us going from 300 basis points of tracking error, trying to get down to 100 basis points of tracking error over a 2-year period. I, I get that. I, I guess I'm trying to understand when we're setting our benchmarks, are we benchmarking against entities that are also underweight on MAG-7? The, well, we're benchmarking against the benchmark, not peers.

So if you look at peers, we're probably doing pretty well. I think Alan will tell you that we're doing pretty well because everybody is on their way back to 7. But if you have an index that has a big position in Mag 7 and you're not, you don't have that as big a position, you're going to underperform that benchmark. And that's been a long 5-year period that's happening. Does that make sense?

I hope I answered your question. It does make sense. I'm just, I'm trying to understand what— the benchmark and peers, we're looking right with this. When Callum talks, we'll talk about peers and how we're doing. We're talking about just versus the benchmark.

Understood. Okay. So because the benchmark has a lot more MAC 7, that's how—. That's one of the reasons we underperform. And then what I'm trying to figure out with my question, I'm sorry I'm not articulating this well, is what percentage of the, the missing of the benchmark is attributable to that?

20%, 30%? Can you just spitball it? Really, really not. I mean, Marcus might have an idea, but I'm—. I really don't know.

I mean, there's— we have the data that we can get for you. Because what's fascinating to hear, like, I learned something just now with what you said, is that everyone is, uh, underweight on MAG-7. I didn't realize that. Um, So that, that was interesting to learn. But the benchmark would not be— Benchmark is not, right?

Because the benchmark is the benchmark and they're in the benchmark. So the benchmark is inside. I mean, as you said it earlier, benchmarks, a lot of them are in the, like, top quartile. I get it. Okay.

No, I get it. I heard that. I heard that earlier. I'm just like, it's— that's a new data point for me. I thought we were— like making bets that were different than other entities by being underweight on Mag7.

And your statement that everyone is, is again, like, I need to process that because that's new for me today. Well, everybody's different, right? And so our bets that might have invested with less emphasis on growth stocks might be mirrored by somebody else too, to a greater or lesser degree. And so our relative performance to our peers is what Greg referred to earlier, that we're maybe above median. But if you just had an index portfolio, you'd be top quartile.

Of course, I get that. I just, when we're talking about our peers, I wasn't aware that our peers were taking the same— obviously they're going to be choosing different managers and different approaches. But I didn't realize that, at least based on what Jim said, everyone was underweight on MAG7. I thought that was not necessarily unique, but rare that we were making that position. I could maybe add a piece to this conversation because I think it's good.

So the way indexes are constructed is based on the weight of the company is related to its size. So when a company grows in size relative to all the other stocks, it has a bigger— so if you think about your domestic equity managers right now, collectively they're measured against the Russell 3000, which is the, the US stock index, and the Mag 7 are about 30% of that index right now. You think about your growth managers who are being measured against, say, the Russell 1000 growth. Max 7 is roughly 45%. So 7 stocks own 45% of that index.

Most growth managers think that's crazy, right? 45% Of your entire portfolio in 7 stocks. Mutual fund rules, actually, if you were that concentrated, if you were an index portfolio, you're essentially violating what's called the diversification rule for mutual funds. Like a whole bunch of these index funds had to go get their rules changed in order to just be an index fund. That's how strange this concentration is in the market.

So not only are peers, other big pension plans and others, underweight Mag 7, but if you look in each manager, active manager category, growth managers are way underweight Mag 7. Value managers might actually be overweight Mag 7. And so it has repercussions through the entire ecosystem. But what it ends up being, if Fouad chose a bunch of equity managers, matched them all up perfectly to the Russell 3000, they would all collectively make the decision to be underweight the Mag 7. So part of it is, I think, Juno and Fouad's decisions about small cap and, uh, value.

But another part of it is the entire active management ecosystem has those same bets on. So you couldn't go out and hire managers that are overweight stocks. They just don't even exist. And so, I mean, in the large-cap growth space, you look over the 1, 3, 5, probably out to 7, the index is in the top quartile, top decile performance-wise relative to growth managers. Because of that.

So 90% of active growth managers have underperformed the index. So yeah, anyway, I've probably gone on too long. No, I mean, that makes sense.

I mean, Greg, that makes absolute sense. I'm just— the last several years, I've thought we were unique.

So that, that influences my opinion about how, when I look at how we've been doing versus our peers, like I thought it was like our peers didn't make that bet, we did. I thought it was a smart strategic move on our part that we were not overweight on Mag 7 and that that was the reason we were underperforming our peers. I'm learning today our peers are taking the same approach, so there's something else going on. Well, there's a couple factors. One is I think the average US institutional funds probably is 60%, 70% passive.

So the active bets are in the 30%. We've brought track gear down, we've added some passive. We're today about 30% passive. 18 Months ago, we were probably 5% passive. In our public equity portfolio.

And then the track here that we were running that public equity at was much higher than what you see in peers. So like we're getting down to 100 at the end of this year. 100'S still kind of on the high end of what you see. And the 300 that we were at is like outlier high. And so like every, um, flip that we're discussing was like kind of magnified, I would say.

One or two different—. But in the end, and you'll see this in Steve's presentation, um, you look at that top thing in your chart, public equities, which includes international, US, emerging markets, um, you guys consistently rank above median in performance relative to peers over 1, 3, 5, 7, 10 years. So But the, the, we talked about this bet and it's been painful.

Marcus is right. You guys had more of it, you had it bigger because you had less passive, but in the end you also outperformed in global, you outperformed in international, you outperformed in emerging markets. So when you net it all out and look at the total public equity portfolio, you guys actually look good relative to peers.

Thank you.

Proceed. Well, this just is essentially what we've been talking about, um, our beds over time. We've had them over a long period of time, um, the following slides are going to show you this, but how it's reduced, um, and gotten a little bit tighter to the benchmark.

Um, this graph represents, um, the previous slide, so you actually see what our percentages are versus the benchmark. For instance, on value versus growth, you can see the first two are value. The first and second quartile are value. We're overweight those, neutral the third, and then underweight growth. And that's just graphically represented.

This is the— this is how we kind of gotten here to where we've, we've tried to narrow it down. We started out in June 30th, 2024. We had an actual— our tracking error limit was 400 basis points for public equities. The water was running at about 300 basis points. The problem we had was performance wasn't— if you looked at 1, 3, and 5-year, we were underperforming on 1-year, we were underperforming on 3-year, and outperforming on 5-year.

It, it didn't look dramatic, but if you looked at the underlying years previous to that, the volatility was pretty extreme. And it was just too high, in our opinion, for the returns we were getting. So what we essentially looked at the portfolio, said, what are our strengths? What are our edges? And it's very hard to find an edge at a large public fund.

But historically, our managers have done really well versus their benchmarks. Forgetting about the last that we talked about. But historically, they've done well versus their benchmark. So we said, okay, our strength is picking managers. But why strength is that?

We tried a lot of the factor things. They didn't work. We had too much volatility. It worked some years, not others. So it didn't look like there was an actual edge there.

So we wanted to find a thing where we could have consistent returns versus our benchmark. We decided that we were going to go with try to be manager-centric. Bring down the tracking error so that what the actual skill is going to be finding managers can beat the benchmark. So we went from 300 to 100. We did it over a 2-year period.

And the reason we did it over a 2-year period is because we had pretty big bets on, uh, they were high conviction. And so we wanted to allow that to run off. We wanted to see if it would work over— like, we thought 2 years was long enough. Any more than that, it's not going to work. It's not going to work.

Um, so we gave 2 years every day, you would drop 25 basis points per quarter over the next 2 years to get to 100 basis points. And you can see that pretty much we're getting there now. We did that. Now it was fairly easy, I think, for Wad to be able to move stuff around to the lower 25 basis points over time because we had so much tracking error. It was pretty easy in the beginning.

Now it's starting to get down to the nitty-gritty. It's going to have to get down to what managers we actually want, how much passive we need. And that's what we want. We want to be a little bit more thoughtful on those subjects to try to find the best managers we can that are going to beat the benchmark.

This again, you can see dramatically over that time period when we started to now is the arrow shows how we've— the positioning is trending closer and closer to benchmark. We're eventually going to be at 100 basis points as a maximum. That's not where he— that's not necessarily where he should be. It's, it's, if there's dislocation in the market, you're going to be 100 basis points. Anything besides that, you're going to be lower.

And, and we then hope to demand from, from there, we hope that it's the managers that give us the performance.

Now we'll go to fixed income. This slide is our positioning. And I want to say one thing. We just added new staff. Aditya Venkataram.

We're very excited. He's been here for about 3 weeks, I think. He's helping Masha in the global rates portfolio. And so because she has— we've been looking for about 2 years for this. We finally found somebody that we think is a good fit.

And she's going to— he's going to be helping Masha with all the analytics and the global rates execution, FX execution. And so it's badly needed and we're happy to have. This shows our positioning. Really, all this really does is show we're, we are close to benchmark on most of the sub-asset classes, with the exception of high yield. We have an overweight and we're underweight global rates.

But you can see just even from this, and we get into much deeper analytics when we look at it ourselves, but the you can see why that would help this, this quarter. If you look at the high yield, we have a 1.3% overweight, a 1.3% overweight, and high yield was the best performing asset class over the last year. Non-US rates, we had an underweight by 1.3% and it was one of the lowest returning. So that those small, small position adjustments that we do generally help us. We don't make big ones unless there's a market dislocation.

If it's a great financial crisis, you're going to see these numbers move around a lot because we'll make much larger bets. But when we have—. We're starting to loosen up a little bit, but we've been in a steady state for so long that we've been really close to our benchmark over time. And we just really want to do security selection in order to help. And some within each of these asset classes make some overweight and underweight best, for instance, banking versus tech or something.

And that helps each of the individual portfolios.

Fixed income returns, we're beating, I think, well, all the sub-asset classes are beating 1, 3, and 5-year with the exception of securitized. But that is starting to— that's one of the portfolios we looked at. Tom O'Dea has taken over that portfolio since the beginning of the year. Because Chris Cummings is retiring at the end of the year. They've been working together on it, trying to think of new ideas, new ways to outperform, and it's been very encouraging as to what's going on with that portfolio as well.

So we expect to be positive and hopefully in 1, 3 years, take a little bit to get to 5-year, but we're, we're close, so we're getting there.

Okay, so this, I can— this just shows our positioning and it's just the attribution. So you can see like with non-US rates, for instance, we were underweight. It had a good quarter, so that subtracted a basis point from our top line number, even though Posh did well within the portfolio and outperformed, so she added the one basis— she added a basis point. The decision to be underweight non-US raised cost us a basis point, but with high yield we're overweight, we gained a basis point back with that. So the point for— sorry, portfolio return excess contribution is how the manager did, how the internal managers did in their different benchmarks.

You can see it's all positive. Last quarter.

And this is just a standard cash management overview with some of the cash flows we had.

Do you invest cash? Do you actively invest cash? Some of it, yeah. Yeah, well, Tom will do a lot of the cash. It's in T-bills and commercial paper.

Smash it back. But yeah, we actually manage that. And then we will also go into the STIF account as well for some of the cash. If it's not—. You're not doing security selection for cash instruments for the—.

We are. Okay. Yeah. So we'll buy asset backs. Tom will go through each day and, you know, some of this commercial paper will roll over and he'll go back and roll paper.

It's mostly rates, rates and asset backs in general. And is it 100% invested every day or do you have some drag in there for There's some drag, but it's pretty close, pretty tight.

Just to be clear, that cash is different than— that's your cash within these portfolios, not the cash within our cash flow? No, this is cash for the corporation. So we manage, we do both. So we have cash in ours as well, but this slide is for the corporation. Okay, we manage that cash as well.

Remind me, was Marcus's gold play in tactical opportunities, or was that within cash? It used to be in cash a long time ago. Cash, wow, 3, 4 years ago. And then now we have it in absolute return of tax bonds.

Questions from trustees?

Callan. I have a question about the tactical ops portfolio, just because its benchmark is like public markets. Yeah. Are you responsible for the portion of that that's not in some— something that's not public markets? How does that work?

That's all—. Yeah, I just— I manage it. It's almost— we have a— Very small private investments. And so 95% of it are not— it's in public. And the majority's in S&P 500 index.

And then we own 2 individual stocks and gold and then a few small private investments. It outperformed the S&P, so I was sort of struck by that. I think, uh, we've had it 3 years. Uh, this year it'd be last year it underperformed, and the first year it'd be— so it's not, uh, it's not an every year thing. It's off to a good start.

Janet, any questions? Trustee Samuels. Let me go back to the earlier— you did, of course, on the everybody is underweight. Um, so when we give this presentation, I guess the question might be for Devin or, or Callan on the merits of it. Um, if everybody's underweight, the value of the index is simply a data point.

Whether you're above or below, it's almost irrelevant because all of you guys are doing the manipulation in your head, like, well, we're good because of the peer, not the index, but it's not accurate. But when you sit before the public, and it doesn't look like we're doing that well.

How do you explain that to people who are not going to sit all day in a meeting like this and have more than a cursory knowledge of that? It seems that the—.

Well, and I was— for the public's consumption of this information, it's— we discount, we discount, we didn't like, we didn't like the coming together of the private equity and the public equity. We didn't think that was correct. And the index, well, everybody's below the index. Well, what good is the index?

It might be an overly simplistic question. No, that's a good question. It makes sense when you talk to the public. We're never going to hit the target.

And the public loses faith in a lot of us in this room right now. Yeah, I mean, I don't think we should hide from the index because we could just get passive exposure, and there's funds like them that just do passive exposure. So like, if we're consistently underperforming public equities index and we're paying $100 million a year in management fees to do that, that's unacceptable. Um, and, and question the time period, and you know, like, it has been so painful to underperform perform our biggest asset class, 1.35%, and pay the fees we pay. I mean, it's an interesting point that a lot of people are suffering the same thing that we are right now, but I don't think, you know, I, I don't— I wouldn't characterize that as not bad performance.

Like, that's bad performance. And I mean, I'm encouraging to look at some longer time periods. Last 8 years, last 10 years, we've outperformed our benchmarks, but If a 5 we have, and like if that 5 becomes 8, that becomes 10, like no one should have comfort that, you know, Oregon State Treasury does the same thing because Nevada just takes what the market gives you. They don't pay fees. So I don't know, I think Jim feels the same way.

Feel free to echo exactly the way Mike said. It's nice to talk about peers, but we're up against that benchmark and there's a passive option ability to build. And we have the ability to be able to overweight Mag 7 if we wanted to. That's our index. We can do that.

We decided not to. So these are decisions that we made that were not the right decision. And I agree with Marcus totally that we're against the benchmark. We're not against peers. I mean, it's nice to look at us versus peers, but that doesn't pay the bills if we beat peers but we underperform everything else.

I think it's different than the risk model of BlackRock that A lot of us don't really agree with that risk model, but I mean, that's a— I think of that as a different topic, and my reaction to it is different. Like, I think that that's a bad risk model for private equity, but that's just my opinion. I don't think we should backward-looking say our benchmark's a bad benchmark. That was the benchmark we're up against. We made bets that were right against it, and we paid a lot in fees to have strong positioning that we could have done better on.

But like, like Bernie Madoff beat his benchmark every year. And like, you know, like I'm not for a minute like comparing us to Warren Buffett, but he has 5, 6-year periods where he's out of favor. And like, we've been out of favor 5 years at this point, and that is starting to test the time limit that you can be out of favor, I would say. I don't know, do you have a—. I do that.

Hold on, hold on. Kevin, then Ethan, and then Greg.

I don't, I don't think I have anything to add to the, that summary that Marcus just gave. I think that that's exactly right, that we have benchmarks to let us know how we're doing relative to what's possible, what is outpacing the active management that we overlay. And to the extent you're not able to provide value, at some point you question what you're doing. So historically, and Mark has pointed this out earlier, in the longer terms, that active management has paid dividends to the fund, 40 basis points of outperformance as a result of that more complex private market exposure in this last time frame since 2021. I mean, you can look at the performance numbers and compare public markets to private markets, and you can see where the higher performance is.

It's pretty easy. And so this is a time that it's difficult to adhere to your approach, but that doesn't— I mean, maybe that's exactly the time that you should. And so it's something that does deserve a lot of contemplation and reflection and thought to determine whether or not you do adjust your course at this point in time based on the recent experience, or if you believe you're going to return to some longer-term norm. And I don't know that— I think the jury's out on that. A lot of that is professional judgment or personal judgment.

I mean, if you look at Callan's assumptions, the highest performing asset class is still private equity, forward-looking over the next 10 years. And apparently it's got about the same risk structure as public equity. So hey, I mean, so it is, it requires judgment is my point by saying that. Thanks, Stephen. Trustee Schett.

I think, you know, we are talking about a couple of different related topics with this, the benchmark, because it's looking at other institutional investors versus this index notion and, you know, completely passive. And we, we do, you know, get criticized about shouldn't we just be all passive and just basically be the S&P 500. And You know, I think, as it's been explained to us in our meetings, and I agree with this, you know, if we did that, we would have, like, just our investment, just our holdings in 6 or 7 stocks would be our third largest asset class.

Or fourth, maybe, behind—. Fourth, the balance of the public equity would be in something, but, you know, it, it'd be kind of a crazy number. I mean, Well, we have $5 billion of NVIDIA on our balance sheet, and we would have 5, which would be larger than several of our other asset classes all by itself, and in relative terms equal to 3 more. So, you know, I'm not comfortable with the idea that we, that on behalf of, you know, our stakeholders would hold more than $5 billion of equity in one company. As a prudent strategy at this point.

So, you know, these, these things are tough when you underperform for a while, but, you know, the reality is, like, if you put some color around it, it's, it's actually, you know, much different conversation. So Greg and then Janet. Okay, a couple things.

You look back in 1999, there was some more pattern where markets got really concentrated around the internet. And I had a client, Hugo, who went all in on overweighting those companies in his utility portfolio. And he was the number one performer in our plan sponsor database at the end of 1999 because he, he overweighted the things that worked. He believed in Grove. He was in San Diego, and that's a big story down there generally.

He actually had me write a letter to his boss saying that he's the number one performer in our database for these time periods.

I don't know, 2 years later, he ended by 2001-ish, 2002, he was the 99th percentile performer in our database, right? And top 99, bottom 99. Yeah, yeah. Basically 100% of our database outperformed him. And so the reason I bring that up is that when we talk about peers, there is some value to being in the herd, right?

It'd be really cool to be the one peer that got this right. And then you start with the question, when do you take it off, right? But when markets get concentrated like that, It's a momentum play and you want to be on the right side of that. Most active managers are not going to do that. So you're going to have a hard time implementing that without doing something in Juno that's unique.

We have a ton of clients that are going through the same thing, by the way. And it's not just that you've underperformed the S&P 500 in your domestic equity portfolio, it's that your total portfolio underperformed the S&P 500. You've got private equity and private credit and fixed income and all this. Why would you have all that? We're long-term investors.

You should put it all in the S&P 500. So we're having to defend diversification generally, not just underweighting the Mag 7 in a lot of our public fund settings where it's politically convenient to criticize the folks that are in charge. So I appreciate, you know, public— it's a hard answer right now. Why you didn't get 14%, you only got 12%. But when you get -30% and everyone else has -26%, that's, I think, an even harder question.

And so that's really what I think this is. You know, I've always thought you should be somewhere between the index and the peers, and then you're kind of safe in both directions. And that's kind of where I see the permanent fund is right now. Yeah, that's where my new knowledge today Like I have literally been telling everyone that the reason we're underperforming is because we're making a strategic decision to be more diversified and out of the Mag 7. And I learned today that's not true.

And that's what I've been telling everyone. We are making that decision. No, we are making that decision, but so is everyone else. But I thought the reason for our underperformance was that. That's the, that's obviously something I learned.

Janet, go ahead. Leading the same way Greg was leading, is that generally when indices get concentrated, there's a reason, and, and they get valuations get very rich. And the other example, I mean, he, he sort of took that one, but the other one is Japan in 1989. Japan got to be almost 50% of the international markets, and no managers were weighed 50% one country. It was just way too risky.

It was a very painful decision for years, and then the whole thing blew up. So usually concentration leads to some change. I mean, and it always has. I mean, it just can be painful while you're waiting for it, but it, you know, there's a reason why you're diversified is to spread your risk out. And if you get very concentrated in that concentrated part of the portfolio blows, it's a lot bigger damage than if you had just been diversified and underperforming.

Perform for a number of years in a smaller way. Also, there's, there's a reason why indices get— and, and one of the, one of the first, the canary in the coal mine, is when the index providers start changing the indices to make that less painful. So equal-weighted indices and a concentrated more— they're trying to sell those, right? An index that purposely underweights those stocks— they did the same thing with the EFA index. They had one called EFA Light, which was halfway to Japan.

So whenever the index providers come out with a new index, usually means you're near the top because they're trying to get everybody like to flatten out their portfolios. So it, it just, it's a smart thing to do from an overall risk perspective. And I believe if I could put my hand on the Bible of investments, I would say diversification is your only kind of free lunch. It's the only way that you can really protect yourself against that snapback risk. Thank you, Trustee Samuelson.

Thank you. I meant no way to imply that we shouldn't diversify or we should always pick winners. You know, obviously that's what the goal is. But when we speak publicly, when Devin gets before legislative committee to characterize this as here's the peer group and here's the index, that's a good way to characterize it. Just to walk in the door and say we diversify us because we're a little low, it's a loser argument.

Even though I think we would all agree with that, but I'm just talking about the perception of the public. And I like the way that that characterization came out, is if you're between, you're, you're in the herd sometimes, and sometimes you're, you're here. But, uh, I think that we need to be careful about how we characterize things in the public. The more and more important that the fund itself becomes quite frankly, critical to funding state government. We can't do without it.

They have to have confidence in us, and to phrase it that way is better than some of the phrases that we, I think, that we've used here in the presentation.

Jim, back to you. Go ahead. Devin or Marcus, any final—.

Austis?

Thanks, Jim. Thank you. Thanks, Alan.

Eating up all of Callan's extra time. Good afternoon, Alan. Good afternoon.

Good afternoon, everybody. I'm Alan Waldrop, Deputy CIO for Private Markets. I'm going to walk through the update for private equity and private income today in this update because we're going to do a deep dive on real estate right after this. And for those following along, the materials start on page 144 of the, of the book. So starting with private equity, just hitting some of the key highlights, and I'll dive deeper into all these, but the allocation is about 16%.

Which is about the same as the prior quarter. The target, the new target, 17%. And really that underweight has been driven by the strong performance of the public markets, as we discussed, which is driving the total asset base higher. Our NAV has been consistent at about $15 billion. We did reduce the annual deployment target to $1.4 billion from $1.5, so a slight reduction.

That's just to reflect the lower allocation target. One note on that, Sebastian touched on it earlier, we've got about $4.6 billion of unfunded commitments in private equity, and a lot of that will get called over the next 3 to 5 years. So not too worried about the slightly lower pace. The 1- and 3-year performance increased on an absolute basis, and we'll dive into that. We did miss the benchmark again.

Was close, but we still missed it. We did have a busy year. We had closed on 34 opportunities. We deployed about $1.34 billion towards the target of $1.5 billion, and we'll get into some of those details in a bit. And, and they most impressively, just bucking the market trend, the portfolio continues to generate significant amount of positive net cash flow.

So we were net positive $1.3 billion in fiscal '26. And then with regards to the team, the team's fully staffed and we don't have any changes. Is that to say then that effectively we funded with what we brought in in cash our own, the commitments? Yeah, 1.34 versus 1.3, so effectively we didn't steal from anyone? No, our Our private equity portfolio has been net cash flow positive, so it's been bringing back in more cash than we've been putting out for the last 5 years.

And we've got some details on that. But yeah, we—. And, and the—. So this most recent fiscal year, we were $1.3 billion to the positive. So yeah, even covered the future commitments basically.

In addition to—. So the net positive was $1.3 billion. So we—. I think we brought in Well, the numbers are in here, but it was like 2 sevens compared to putting out 1, 4, or 1, 3, 4, 1, 1. So this is a, the performance summary.

These are the, the time-weighted returns and benchmarks that Callan provides us. This is in their June 30th report, which, just a reminder, these numbers are lagged. So these, the cutoff for these is March 31st for privates. So you could see the 1-year performance, the, the aggregate performance, um, continued to increase on an absolute basis. We're up to 10.45%, which is the highest return we've had, uh, since 2021.

Um, but the benchmark outran us at 10.67%. So, um, you know, that was disappointing, but we're pleased with the absolute performance because at the end of the day, the absolute performance is what grows the asset base for us. The 3 and 5-year continue to lag. The 3-year's under less pressure than it was because the weaker numbers are rolling out, but the 5-year's still being hit. So it's going to take some time.

And there's a slide coming up on the 1-year performance trends. And so you'll see how that's rolling through.

So this is a new slide we include just to show you what the 1-year returns— and these are IRR, so these won't tie exactly to Callan, uh, time-weighted return— but this just shows you the, the fluctuation in the 1 years. Um, you can see back in 2016 we had a negative return, but 2017 through 2021 was very strong. In 2021 we had a 63% return, so when I'm talking to the team, I refer to that as the party. That was the blowout end of the party, and '22, '23, and '24 were the hangover. Um, we're, you know, '25 we turned, um, we turned positive at with an 8% IRR, and then in '26 we have about a 10.5%.

So we feel like we're, we're through the hangover and, and getting back towards that average return over this time period, over this 10-year period, is about 14.5% a year. So we feel like we're tracking towards that. And hopefully, as some of the changes we made, like rebalancing the portfolio to be more, a little more diversified by industry— we were heavily concentrated in tech, heavily concentrated in biotech, and then in terms of strategy, we had a lot of venture that obviously pays handsomely. When, when the market's ripping, but it's painful when it reverses.

This is just a, a summary of the portfolio, right? And we show it by category here, going back to the inception of the program. And just looking at the big numbers in, in terms of totals, overall we've invested just over $21 billion And across the private equity portfolio, we've received $24 billion in cash. So we've got $3 billion more back than we put in, and we've got about $15 billion of value remaining. So when you net all that together, that's a gain of about $17 billion in the program.

This just shows you where we are positioned relative to the benchmark. So we modified this table a bit to show our market value, the Cambridge benchmark market value, and then the over/underweight. And we added two columns at the end of this on the right where we have the adjusted market value. And that actually includes— so our current benchmark doesn't include energy but includes debt strategies. And we're showing this adjusted value just to show what it would look like if you included energy in the benchmark and excluded the debt strategies that we don't do in the program.

So you can see we're pretty close on everything. I think growth equity is the one thing where we're off by more than 5%, but that's not that much of a concern. We continue to do more growth and we think that will moderate over time. And then in terms of geography—. I have a question about the benchmark.

Yeah, because this is going to come up. I mean, if you, if you're at all risk-averse in a position like yours, you want to know what's in the benchmark and then inevitably you're going to manage towards it if you don't have a better idea. Right. In other words, if I looked at this and I knew I was going to have energy, not have energy in the benchmark, I'd not probably be adding the energies. Are you, are you doing it that way or is this just more like we're doing what we're doing to get a higher return and we look at this as sort of a secondary lens?

I'd say on the private side, in private, particularly in private equity, it's really tough to manage to your benchmark because it's a, it's a lagging indicator and you don't control when you put the money in necessarily and how the values adjust. We had always had energy as part of our strategy, and when we separated the private income, we weren't doing um, sort of senior lending in our strategy. Like, there's some, there's some other strategies like distress for control and things that get captured in there. So we didn't, and I think we realized that the benchmark, when it changed, or when the, um, it was probably 2 years ago when we realized that we weren't aligned with what the current selection is in the benchmark work. So we haven't changed our strategy.

We've continued to invest in energy. We think it's a good place to invest. It's not a significant overweight, um, but we— and, and then we're going to put forth recommendations for changes to it so could line up more with what the actual strategy of the program is. So These are more on the cash flows.

The top chart is contributions over time. The bottom chart is, is distributions over time. You can see contributions tend to be steadier than distributions. Distributions tend to be lumpy when the market's robust. A lot of people put things up for sale.

There's a lot of transactions. And so if you, if you look here, each year going back to '21, the program's generated um, net positive cash flows, and that's actually been steadily increasing. So like in '23, we were positive $500 million. In '24, we were positive $800 million. '25, We were, we're positive $1 billion, and we expect to exceed $1 billion again in fiscal '26, or in the calendar '26.

You can see we're off to a strong start. We've got a lot of exits that we know are coming, uh, between now and year-end.

And then on a quarterly basis. So it's not just in aggregate on an annual basis, it's on a quarterly basis.

You have to go all the way back to the second quarter of 2022 when the market fell apart to have a negative cash flow quarter. And you can see the last three quarters on this chart, the last quarter of '25 and the first three quarters of '26 have been particularly strong. We know there's a lot of stuff happening in Q3 that's come in, and we expect Q4 to be very, um, a very big quarter for distributions.

In terms of the investment activity and pacing, I, I mentioned earlier we, we finished fiscal '26 at about $1.34 billion committed towards a target of $1.5 We were going to be right on it, but we had a few things that we had diligence gotten approved, but the closing date slid till after, after June 30th. So they fell into the, into this current fiscal year.

But that's, that's fine. We, we got a lot done and we're very happy with what we got done. And you see in the pie on the right, about 70% of what we do is in traditional fund structures. Where we're the LP and we, we, we invest with a manager. But about 30% of what we do is spread across direct investments, co-investments, secondary purchases, and then continuation funds.

And those, those typically have lower fee structures. And I've got a slide on here where we'll talk about that. But again, even though we lowered the target to $1.4 billion, we still have $4.6 billion of unfunded So we're not worried about that coming in too light.

This is a new slide we wanted to put in here just to highlight some of what we've been doing and remind folks. So this summarizes our, our co-investment and direct investment activity, which, as you saw on the previous slide, is one of the ways we can invest. An advantage of doing this is that it gives us the ability to tactically deploy capital into opportunities and sectors that we like. Because when you make a fund commitment, might take time for that fund to close, then it's up to the manager to call the capital over time. But if we've got a co-investment in a particular area, we can deploy that capital quickly.

And they have a shorter lifecycle, typically 3 to 5 years. Another big benefit of these opportunities, they typically have low to no fees, charged on them. So that means we're not paying the typical management fees we pay on a fund, or the carried interest, which typically is 20% of the gains on the opportunity. So if you can pick the same as your fund selection, you're going to make more money just by saving on the fees. You talk about what happens when one of these goes bad.

What is your obligation as a co-investment structure versus if you'd invested in it through a fund? There's no different obligation. If you invest $50 million in a co-investment and it underperforms or fails entirely, you lose that money. You're not—. There's no sort of recourse to APFC on the debt or anything like that.

We never do anything that would have recourse. Um, the, the issue is one of selection. So when you're co-investing or, or, or, or picking individual investments, you have much greater selection risk than you do in a fund, because in a fund you're going to get 10, 20, 30 investments that the manager's picking. You'll have winners, you might have some losers, and they kind of net out to what you hope to be a good return. So we're very thoughtful in what we're doing in Co-Invest and Direct, we're very much focused on downside risk.

We're not aiming to shoot the lights out on these. We're not taking flyers. We're trying to find things that we think can earn a 2 to 3 times return with very little downside risk. So we spend a lot of time looking at what the GP's model, what has to go wrong for this not to work, and hopefully what has to go right for it to work isn't a really long list. So you want a short list of things that have to go right.

And a really long list of things that have to go wrong. And then if we can do that and we've had some good success over the last 3 to 4 years and you'll see the since '23 numbers, there's a lot of upside built in here and we've got a lot of exits that have happened in the June quarter and in the September quarter that will roll through these numbers. Yeah, yeah. So you can see, I think the big, the big number here is the estimated savings. You know, if you look at, um, if you look at the chart here, we've got about $2.7 billion, uh, invested and, um, generated about $3.6 billion of gain.

Uh, you don't have to pay 20% fee on that. That's a big savings. And so that all flows back. It's You know, it's one of the key benefits of doing it. Alan?

Yeah. Lack of liquidity has been one of the reasons why we weren't getting paid for that lack of liquidity, why we've shifted away from PE. And my question for you, and I don't know how to articulate this, but from an, uh, for the trustees to understand what of that cash flow we're bringing in is old cash from investments from '15, '16, '17, '18. What is the, like, the length of investment? Like, how much is a 10-year-old investment that hasn't paid out yet and is still generating cash flow or still to do, you know, sales.

And like the average length of time of the fund, I think we've heard 5 to 7 years. But what we currently have is we have investment years that have still obviously contributions to be made, but still money that's being generated that hasn't closed up yet. I don't know if that question made any sense. I need to understand that for us from a— we've made a conscious decision to decrease our allocation to PE because of that lack of return that we're claiming we're not getting because of the lack of liquidity. I want to understand how— what are the length of time and amounts that we have in those older investments?

Yeah, we can look at it both ways. So like with the unfunded balance that I mentioned, we can see by vintage year of of fund where we— what funds have yet to call out money. And the vast majority of that is in the recent funds. And then same with the net asset value that's remaining, like that $15 billion of net asset value, you could— we've, we've got the ability to look at that and say, okay, where is that? Is it in funds?

Is it in directs? Is it co-investments? Is it, um, and what vintage years is it associated with? And I'd say You know, anything that's probably pre-2017, a lot of that's been wound down because a lot of that got sold in 2021. And, and then, you know, some of it still hung up.

There's things that maybe aren't working or things that our managers just want to continue to hold. Um, I think a lot of that is hung up in things that probably were invested in 18, 19, 20, and 21. Because in mid-'22, when the market fell apart, that was a period where the valuations were highest. People paid high prices for a lot of assets. It's okay to pay high prices for good assets because you can usually sell good assets for high prices.

But if you pay high prices for mediocre assets, you, you need a market to go crazy again for people to pay those prices. And so that's a lot of what's being sat on right now and where people are in trouble. And so I think the reason we've been able to be so cash flow positive is that we didn't ramp up massively our commitment pace into the height of the boom. We had a pretty stable pace and we kind of stepped it down a bit. So we didn't have— um, you probably have less new stuff in proportion than other people who are really trying to increase their allocation and get a lot of money out.

We are starting to see things exit that we invested in, in say 2022 and 2023, because they're hitting their 3-year sort of maturity period. So we're starting to see exits come off of that. But I think a lot of what's stuck in the system is kind of that 2018 to 2021. See, and before I get to Vice Chair Schott, The comment I remember from Callan either this year or the last year at your conference was the churn generated by PE selling to themselves, like one manager selling to another manager and that driving the price up. Yeah, one-third.

Yeah. And so what of that is actual growth versus fund manager-induced growth? Well, so yeah, I know the speaker at the Cowen Conference was a public equities guy and had all kinds of bad things to say about private equity, which they usually do. But I can tell you, right, I know—. Forget that guy.

There's no organized— like, these are individual companies or managers that are individually very greedy and they want to pay their teams and they want to make all the money they can. So I'd say more often than not, they're trying to sort of get one by one another. They're not trying to help each other. You do have situations where a company— somebody will buy a company and the value creation plan will be focused on growth, and that manager is good at growth. And then it hits a rough patch and you've got to restructure and downsize and do other things.

They're not that good at that. So somebody else might come in and say, I could do that and I can do a better job than you can. And that person might realize that they should sell that company because they don't have the skill set to do restructurings. Or, you know, maybe it becomes a big technological pivot and they just don't have the right skill sets. So, but when we look at, like, we've looked at, and there's different ways this comes about, you could sell the asset to another private equity firm.

You can sell it to a strategic, you can take it public. All we really care about is that you're selling for the highest price you can get. Because for us, I don't really care who buys it at the end of the day. We want the cash back at the highest rate of return you can get. And if the public markets are not in favor of those companies, like we've had a stretch where the public markets only want certain types of companies.

So you can't take it public for the highest value, but you might be able to sell it to a strategic. But then there's times strategics aren't active because they're dealing with their own issues in a particular industry. So private equity might have the money to do that. It might—. That might be the best option.

So it just depends. Okay, you're good. Other questions? I would ask maybe at like, I like the vintage year. I want the vintage year, uh, data included in packets in the future if possible, because that'll help me understand.

What you just said, we're cashing out a lot of them that are 2, 3 years old, and we've been told it's 7+ years. And yes, there are some that are in that 7 to 9 years old that are from the COVID area, just before COVID and we've had to hold on to them. But the recent investments seem to be churning at a quicker pace. And so it would just be interesting to have that— what cash flow is generated, what sales have occurred, and what commitments are remaining for each one of those on like a mounted on top of each other. Yeah, well, I'll do that.

Chart. Thank you.

So moving quickly to private income, we'll dive in deeper into some of these, but the allocation continues to decline. We're about a percentage point under the target. Again, a lot of that's, you know, we've got some cash back, but a lot of that's due to the continued rise in the total asset base. Our deployment target. We reduced that to about $500 million annually from about $1.3 billion before.

And you'll see in the details we get to, we didn't come close to deploying the $1.3 billion last year. So it's not a huge cut from where we are, and we still have $3 billion of unfunded in this category too. The performance has lagged the benchmarks across all-time periods. Really what drove that is the infrastructure returns came down, uh, in the, in the most recent 1-year period. Uh, we had really strong performance from a lot of the power, uh, investments we made, and, and that kind of rolled off the reporting period.

Um, this portfolio was breakeven from a cash flow perspective in fiscal '24. It was positive in fiscal '25 and '26, so it's maturing and getting getting to where we'll be cash flow positive more regularly. And then we, as Devin mentioned, we hired an associate candidate in August of '26.

Here's the same chart we show in private equity. These are the, the Cowen performance, official performance numbers. And you can see over aggregate performance over the 1, 3, and 5-year periods declined from the 10 to 11% range down to the 7 to 9% range. And, and so again, we had really strong performance in infrastructure. The 1-year in infrastructure went from 14, um, to 10.3 to, to 7.7 over the last 3 quarters.

So there was a really strong quarter in there that rolled off, and it's, um, kind of hammered that performance.

Here's the same chart we put in for private equity. We've added one for private income. This is the 1-year performance. You can see it's got lower volatility than private equity, so it's got a much narrower band, but I think it's still got probably more volatility than we would like, particularly when you look at the decline in '20 and the snapback in '21. I think if you blend those out, you're at a a pretty good number, about 11 or 12.

But I think we'll, we'll come down, you know, in the next fiscal year when we show this. So we're— I think Marcus noted this in some of his comments— we're really focused on making sure the portfolio is balanced across sectors.

You know, we, we did a lot in power, energy transmission, We've got some renewables, things like that. So fairly large exposure to the energy sector. So we're trying to balance that a bit. And we're also trying to target less volatile core strategies given where we are in the cycle. And we want to focus on assets that are generating high cash yields, you know, with, with a little bit lower volatility.

So this is the, the total portfolio summary, uh, through March 31st, '26. We've invested about $15.3 billion here across the three categories: private credit, infrastructure, and income ops. Um, we generated about $14.1 billion in distributions back, so not quite cash flow positive in aggregate but getting there. And we've got about $7.5 billion of remaining value, so we've had a gain of about 6 $6.2 billion. Um, and, and so, you know, we're, we're getting there.

I think this should be cash flow positive in the next, uh, probably year or so. How much of that is income?

How much of that positive is income versus, you know, realized depreciation from selling deals? You have a sense of that? Of the $14.1 we've gotten back I don't. We could get that bill and break that down. I think that same question can be applied to the PE.

Yeah, I mean, I think in—. You hear me?

You've been cut off.

There we go. How about that? Okay. In these two, in these three asset classes, income is kind of a deliberate component, right? This is the private income portfolio, so that you're going to see less of that in private equity.

So, but yeah, I'm just curious, like, what's kind of been the yield that this thing spits off versus deal realization? Yeah, well, I mean, that's exactly where I was going with it. Like, when you say you've returned almost, I mean, uh, that's great to hear, but if that's over 25 years that's like, whereas if it's over 3 years, your IRR is way better. And so from a timeframe perspective, Alan, I think that's important to know as well. What is that distribution versus contribution timeline?

Yeah, I mean, that's, that's all effectively built into the IRR in aggregate by category, but we can show We could do the same analysis where we show where— what year the distributions are coming from. Thank you.

I touched on this. Cash flows continue to get more balanced each year. And if you look at the first 3 quarters of '26, those were particularly strong. We had $1.1 billion of distributions come back. Compared to $330 million of contributions going out.

So pretty strong positive momentum there.

And then on the investment activity and pacing, so you can see here our target was $1.3 billion for the year. We came in at about $800 million. You know, that was just the market was a bit slower. Some things fell out of the process, and we just don't feel like we need to stretch to managers that we're not— we don't really feel strongly about just to get the money out. And so that pace was reduced to $500 million, which we think gives us plenty of room to do the things we want to do.

And we've also got $3 billion of unfunded that's sitting there, and most of that's going to get called over the next 3 to 5 years.

Real estate, we're going to touch on in a minute, but there was two things I wanted to highlight just in terms of the team. And you heard about these from Devin. We had two 2 changes in private income. The first is new associate, he joined the team last month, it's the last day of September, so I can say last month, filling the vacancy. And second, and very importantly, we promoted Tarek to portfolio manager.

Tarek's done an outstanding job and we were very excited to be able to promote him to the next level and He sits in our Anchorage office and covers the private market sector.

So from a leasing perspective, I think every single one of these categories did not get the contributions that were thought to for this last fiscal year? Yeah, the pacing is— the target is really an estimate of what we think we need to deploy to keep the allocation where it's at. And so that depends on, one, having the opportunity set that you want.

But it also depends on like the other things that move it are the rate of what's called like the rate of contributions that you're putting in, the rate of distributions that come back, the changes in valuation to the assets that are in the ground. And then that's all in the private side. And then the denominator is what's happening at the total portfolio. And so I think, you know, if you look at where, where we probably missed on the estimate or were wrong. It's—.

I think the returns were so strong in the portfolio that we just, we ended up under. But that can change. You can have a few bad days in the market and you're up another percentage point and you're kind of right on target.

You don't want to get there that way, but—. Agree. Trustees, any questions for Alan?

Thank you.

Do we want to do a break or do we want to do real estate?

Keep going. All right, Eric.

While Eric's coming up, uh, Pauline, if you're here, I just— I— we're going to be coordinating a picture at the gnome giant old van, and I don't know— and I know that Trustee Earls has to leave tonight, so we want to coordinate the 6 of us there. So I don't know if we want to do that at the end of the day or if we want to do it during break, but I'll let you coordinate that with Devin and Jennifer. Burl Darts, huh? Burl Darts, there it's right next to it. You can do a bowl right there, exactly.

As well, yeah, I don't think it matters. I think the lighting will be fine. It'll just be when do you need to get to the airport? Flight's at 6, she needs to get her bag dropped off by 5.

So whatever, whatever works. I just wanted to make sure I threw that out there because It looks like we're not going to make it. Let's take a break. Or if there is a break— Oh, we're going to make it. Callan's not on today, so we're going to make it.

Welcome, Eric. All right. So this is the real estate asset class update. I'm still Alan Waldron, the Deputy CIO for Private Markets. And I'm joined by Eric Ritchie, who's a Senior Portfolio Manager and Head of Real Estate for APFC.

We're going to give an update on the portfolio. The materials start on page 172 for those following along. I'll start with a quick overview and some history, and then I'm going to turn it over to Eric to really get through the meat of the deck. And talk a lot about the portfolio and what's been happening.

So we thought a little background would be good on kind of why invest in real estate. So real estate offers both income and the potential for appreciation. So if you think of the asset class we just covered, private income, that's a big component of that asset class. Income is also a big component of real estate. The other big benefit is it provides significant diversification to the total fund, and it's a hedge against inflation because over time you can raise rents and things like that, and you sort of have the built-in inflation protection.

So the role of real estate in the portfolio, it's a very big asset class. It's a third largest asset class in the United States, um, with a market value of about $24 trillion. It—. It— owning real estate, you, you get downside protection because you've got assets that you, you, you can sell, you can manage, um, you have steady, consistent cash flow, um, you got a low correlation to equities and bonds, which I touched on. And then it's income-oriented and you've got the potential for capital appreciation.

APFC has been investing in real estate for a very long time. We started back in 1984. I think it was the second thing we could invest in behind bonds since '93, which is kind of as far back as our as far as good data goes, the portfolios generated an 8% return and returned about $36 billion of cash flow to the fund.

These are just a little bit more detail on some of the things I touched on and some of the reasons why it makes it an attractive asset class to invest in for an institution like APFC.

Like most areas that you can invest in, there's a broad range of places you can invest in across the spectrum that have differing levels of return and risk. And so if you look at— and you'll hear some of these terms come up as Eric's talking through it— but if you look at sort of from the left side to the right side following the arrow, you've got core, which are, you know, that's investing in stable markets, stable assets that are well occupied, and they've got very steady cash flows. Those have the lowest return and lowest amounts of leverage. You've got Core Plus, which you can buy things and make a few improvements and redevelop it a bit, get a bit higher returns. And so those two comprise what we would call the core category.

And then we've got the non-core category, which has value-add, which tends to involve a lot more repositioning. Again, you can look—. Returns keep increasing across the spectrum. And then you've got opportunistic, which is, you know, at the end of the day, it's the highest-risk category, but it offers the highest returns.

So we also, in addition to different areas we can invest in or strategies, we've got different ways or different structures we can invest in, very similar to some of the other things you've seen in our private market portfolios. We can invest through fund investments, co-investments. We've done that through the real estate program. We have—. We can invest in REITs, which are a more liquid structure, and then we've got separately managed accounts.

And so for a long time, the program really focused on acquiring assets through separately managed accounts, shifted over the last year and a half or so to focusing more on fund commitments and co-investments. And so Eric will talk a lot about those different approaches.

This is the team. We've got 5 people led by Eric. 4 Of them are in Juneau. We've got 1 remote. And I think what's important to note too is the team is supported by a large group of advisors, asset managers, property managers that are working across the portfolio.

And you can see that here. This summarizes the different advisors and separate account managers that support the portfolio. Portfolio. So you can see kind of what they're, you know, what the exposure is that we have to the different managers in the NAV category. And then you can see the staff levels they have and the length of the relationship we've had with them.

So in summary, they've got very large teams that acted as an extension of our staff, and we've got very long relationships with most of them.

We'll get into a lot of this stuff in detail, but I'll just give you a quick summary here. 2006 Was a really busy year, and Eric's going to hit a lot of these, the detail behind these. But if you kind of break down the summary, we committed about $1 billion to different real estate fund investments during fiscal '26. We executed on about $300 million in asset dispositions.

Making, making good progress towards the board's directive, uh, to reduce our direct exposure there. Our performance improved on an absolute basis but lagged the benchmark, um, and liquidity improved greatly. I think you might recall from some of the prior updates that I've given as part of the private markets, we had a lot of cash going out, um, that's since reversed as we've We've collected a lot back on our debt program. We've stabilized some of the direct holdings, and then we've made other investments that are generally more sort of cash flowing. And so a lot of progress there.

So that's kind of a little background and overview, and I'll flip it to Eric to get into the portfolio and the other details.

Thank you, Alan. Yeah, from the record, Eric Ritchie, Senior Portfolio Manager, overseeing the real estate portfolio. So I'm going to talk a little bit about the portfolio composition. So this is a slide that shows the entire real estate portfolio, breakdown of it in terms of vehicle type and also by the different sectors that we invest in. So as Alan mentioned, we historically have had a lot of capital in SMAs.

So you can see that roughly, you know, 60-ish percent of the portfolio is still in SMA structures, which is the directly held real estate. We have about $2 billion in equity funds. And, you know, this will evolve over time, but we did deploy about a billion into fund commitments last year. So as that capital gets deployed, this vehicle mix will change and be a little bit more oriented towards funds and co-investments. On the left-hand side, you can see our sector allocation, and we'll get into a little bit more, but we're roughly aligned with the benchmark there.

And I think we just mainly wanted to point out there's different ways to invest in real estate. And APFC does it both indirectly through commingled funds and REITs and also directly through a structure called, you know, through SMAs where we have professional real estate managers that are overseeing the day-to-day operations of that SMA portfolio.

So page 14, so page 14 is a breakdown of the whole portfolio between those risk categories that Alan just went through. So core being real estate that's in highly liquid markets, high occupancy, um, generally newer vintages, um, and that's the bulk of our SMA portfolio, um, and is, is an, is a core risk profile. The opportunistic in the, in the separately managed accounts is some development projects that we've done over the last several years. So mostly that was in the multifamily area. So that's what that represents.

But there is a significantly higher risk profile just because you're taking construction risk, lease-up risk, etc. Our equity funds are mostly Core Plus risk categories, and that's where it's very similar to some of the core attributes, but a little bit riskier. So maybe instead of being 90% occupied, the manager is buying an asset that's 80% occupied and they have to lease the apartment building up, you know, to 95% to stabilize it. So it gives you a little bit more return.

Any questions on the risk profile? Move on to geographic exposure. So we mentioned during last May's board meeting that we were going to really focus on deploying capital into the US and roughly 80% of it into the US just because our benchmark is a US benchmark. And we—. That's effectively what we've done.

You can see, I think it's 92% is in the US and then 7% in Europe.

It's the only Alaska-based asset you're holding? That's right. And are we— the rent that we're paying, are— has there been an independent market analysis, or do we pay ourselves top dollar? Well, Juno is a tough office market. I think we're—.

It's a great answer. I think it's a great deal for both parties, but I think the building is fortunate to have good tenant in there. Well, yeah, of course, because it's us. Yeah, yeah, yeah. I mean, and then I think it's a home run that we found.

The city wanted to buy the, the, the bottom two floors. That'll be a great city hall for them. And I mean, the office market in Juneau is very tough. Has it closed yet? Hasn't closed, but the purchase agreement's signed.

They put a deposit. They're doing all the work. They have to close in January for tax reasons, so it's—. It'll close in the next few months, and they're far along on building out the space.

And then we, we collect revenue from the other entities that are on our third floor as well. Yeah, just one.

Sorry, Trustee. Is that a calendar fiscal year? CBJ? I saw our tax issues. There's something about switching from the tax structure we had to— it's going into a condo structure.

Way to do it in the next calendar year, or we risk tripping over some technical thing. But we—. They—. The city would have been happy to close in the fall, and we're acting like they've closed in a sense, but we still own it till— and they're proceeding with all the TIs. Yeah, they're doing major work.

Trustee Samuels. Thank you, Eric. Do we own any what you would consider like well-known properties? Do we own like Yankee Stadium or something like that, or I would say the bulk of the SMA portfolio is— I mean, this is institutional quality. A lot of it is well known.

You can look it up in real estate databases.

So yeah, I don't know that it's worth getting into the particulars, but it's a—. It's—. I think we, in the past, we have published a list of all of our properties.

Properties that you always talk about as a real estate portfolio when you look at our holdings. That's Tyson's Corner and Park and Rec Lots. Yeah, that's what I was just wondering. What, what, what can you show a picture of and tell people about? That's what they'll remember from your entire presentation, is that you own Yankee Stadium or something.

Yeah, I don't believe, Ralph, we own any sports complexes that I'm aware of.

Yet what percentage of the portfolio do those two properties represent? I'd have to go check the exact figure, but I think it's something around the Tyson's Corner Mall. That's, uh, roughly 6% of the portfolio. Together they're like a little over 10%.

Much smaller percentage than the, uh, Mag 7 and the S&P 500. That's right.

And again, we're going away from, based on board direction, individual ownership of properties like that, and going into funds that we own a portion of buildings then rather than the full Exactly. We, we've got some more detailed slides on it, Chair. I'll get into that more detail. Um, so, uh, the benchmark comparison— this is just where we are relative to our benchmark. I think, uh, from a total portfolio perspective, we're roughly aligned with the benchmark.

A little bit of underweight in residential and, and industrial, uh, but, but part of the deployments we did last year was into some of those sectors. So, you know, we do think that's going to even out over time. Page 17 breaks down the SMA portfolio, which is, which is part of the portfolio that we are reducing exposure to. And as you can see, there's, there's some pretty significant deviations from the benchmark here. Sorry about that.

So you can see that industrial, we're about 15% underweight in the SMA portfolio and 8% on— so, so some significant deviations there. And when I get into the performance later, that, that will make sense.

Okay, so some of the performance highlights. So We are rebalancing the portfolio, so significant asset sales are occurring. We completed about $300 million in asset sales last year. We're in the process of executing on about another $700 million of asset sales right now. So there is some rebalancing going on, but despite that, REITs have performed over every single period.

As you might recall, last May, we said we We, we reposition the REITs to be an opportunistic strategy seeking total return. Our equity funds outperformed in 3-year and 5-year. Our debt investments have outperformed over all-time horizons. And then in our SMA portfolio, industrial, residential, and office have outperformed a fund fighting against their sector MPI benchmarks.

Page 20. So We wanted to highlight on performance, you know, the significant improvement over the last 4 years in the long-term performance. And I think the backdrop is that real estate managers are underwriting asset hold periods on a 5-year, 7-year, and 10-year hold period. So we really want to improve our long-term performance. And for us, you know, that measure's going to be the 5-year.

So back in fiscal year '23, we were about 400 basis points under forming our benchmark, they were 24 basis points. So, you know, there's been significant improvement over that, over that period of time. On page 21, it shows absolute performance. So we're, we're trending upwards on absolute performance, you know, particularly on the 5-year, going from, you know, going up to from 3% to roughly 4% over the last 3 fiscal years. And on the 1-year, you know, going from negative returns, absolute returns, 3 years ago to, you know, positive 2.6%.

As Alan mentioned, liquidity has significantly improved. Last year we had about $1.2 billion of net cash flow that came back to the fund. Most of that was through some— we did sell down some REITs. Due to our repositioning to an opportunistic strategy and reducing position down to 5%. And then we had some debt payoffs in our SME portfolio that came through to provide that cash flow.

In terms of allocation, today we're roughly 0.9% of the total fund. Last May when we had our annual review, 2%. So we're still under our target of 10%. I'm going to talk a little bit about the market in this section, just general real estate market trends. This is an index, the Odyssey Index, which is— comes from one of our consultants, and it just shows the total returns since 2018 And there was a lot of volatility in total return in real estate leading up to first quarter '22.

So COVID was really the perfect— Fed dropped interest rates to zero. They pumped a bunch of money in the economy. There was a lot of real estate activity. There was some changing in use of real estate assets due to COVID. We had a lot of industrial demand for industrial product because We were buying things that having delivered to our homes.

So it really drove up total returns. And it's a 6% sort of total quarterly return at the peak, which was not really normal. As interest rates rose, values just came down in real estate. So you can see that significant drop in total return in the fourth quarter of '22. But I think The key highlight here we wanted to share was that returns have roughly stabilized in the index to that sort of 2% quarterly return level that you can see there was in 2018.

In simple terms, I think going on to the '27s, this continues to show some of the same similar trends, just that capital values dropped in the second quarter of '22, but it was really driven by the rise in interest rates. Interest rates, because you can see that the net operating income growth continued to grow during that period, showing that, you know, fundamentals didn't really change too much across many of the asset classes.

Slide 28 is a chart that shows the NOI growth of several of the sectors. You know, most notably recently retail and self-storage have been outperformers from an NOI growth perspective. Residential and industrial has been decelerating, and that's really due to just tons of supply that came online in the residential industrial space during COVID when those rates were really high. So although residential and industrial NOI growth has been somewhat muted of recent, we are still pretty bullish on those sectors. Due to the fact that we know that supply is burning off, and which will create an ability for managers to grow their rental rates again.

And we do believe long-term in the fundamentals of those sectors.

This is just an occupancy chart showing occupancy during— even though real estate was repriced over the last 5 years and dropped about 18%, the occupancy stayed relatively strong. You know, really just indicating that, you know, we really didn't have a macroeconomic recession, but really just shows that the fundamentals of real estate have remained strong despite the value drops.

Next slide, 30, is transaction volume. So I would just direct you to the red line showing that, you know, transaction volume is above pre-COVID levels. So, you know, we think that this indicates that, you know, buyers are selling, sellers are agreeing to terms, and there's actually transactions that are occurring.

Slide 31. So this was some of the, you know, the— this is a supply chart showing the reduction in supply kind of from when it peaked in 2022, it's about a 50% reduction in the new supply that's coming online. So new apartment buildings that are being built or new industrial buildings that are being built have significantly fallen. And so we do anticipate that, for instance, our equity funds are mainly tilted towards industrial residential, and they didn't do well this last year, but we do anticipate that they're going perform over the long run due to the supply and demand.

Page 32. So, um, I added this slide in here just to speak to some of the diversification benefits that real estate has. So, you know, on the left-hand side, um, you can see the S&P 500 outperforming the real estate index from, from 1997 to 2000. Um, significant outperformance. And then when the dot-com bubble hit, you can see on the right-hand side, from 2000 to 2003, real estate outperformed the S&P 500 index.

So just a reminder that the reason we have real estate in the portfolio is for cash flow diversification. And in addition to, a lot of our core holdings are really in those liquid markets that provides that kind of diversification that's important to a large portfolio of cars.

Okay. So I'm going to move into some of our investment activity, but before I do that, I'll just talk about our strategic priorities, a lot of which we, we talked about last May in, in CITCA. So our investment focus, you know, that we talked about in May was that we were going to deploy near-term capital into commingled funds and co-investments. We deployed $1 billion last year into those vehicle structures. We talked about how we were going to leverage our SMA managers.

Again, those are those real estate private equity firms that are managing our real estate day-to-day while we're overseeing them. We've been leaning on them for all the daily operations and staying mainly just applying and being a sounding board when we have major capital allocation decisions like asset sales or refinances. Asset dispositions, so board directs us to sell 50% of the SMA portfolio by 2030. We've completed $300 million of dispositions of SMA assets. We're currently selling $700 million.

And as I've talked briefly about the REITs, that we reposition them to a opportunistic strategy.

So some of the activity during the year that the team completed, there are 4 other staff members, 1 senior portfolio manager, 1 portfolio manager, an associate, and an analyst. We reviewed probably 95 investments, and we closed on 7. We had 135 in-person meetings and took overall as a team 588 phone calls.

Page 36 just highlights the new investment activity throughout the fiscal year. So roughly $944 million of equity deployed. We focused a lot on the value-add area. Due to the fact that some of our development assets are stabilizing and they're really core assets. So we had some capacity there.

I think roughly how we think about it, we want to keep the portfolio roughly two-thirds core, core plus, and one-third value-add opportunistic to maintain adequate return levels.

We deployed a decent chunk into net lease just because we felt like where the cap rates, hiring managers that can buy real estate assets at high cap rates, given the environment we're in, they can realize that spread between the Treasury. Most of our net lease managers are buying stuff at 7, 8 caps, so significant spread over the Treasury.

So page 37. Moving on from new investment activity. So asset dispositions, you know, team's done a pretty thorough job of— we've gone through every single asset in the SMA portfolio. We've looked at revenue growth, historicals, and we've identified a chunk of assets that we think we can liquidate and do it smartly as well. And we've made good progress.

And, you know, roughly $1 billion are either sold in process. So it will take time, and we're glad— I think we have until 2030, but we've made some, some good progress to date.

These are the 10 assets that we bought last year.

I guess the only thing I would just highlight is, you know, there's, you know, office there, retail, some of the items that were over— had overexposure to the backlog.

Now I'll turn it over to Alan. He's going to talk about some of the plans that are going into fiscal year 2027. Thanks, Eric. And yeah, just, I think on the asset sales, we're trying to be really smart about it and finding things that people want. And, you know, when you get moves in interest rates, that changes the dynamics of each individual sector change.

So we're trying to go about it pretty thoughtfully and not be in a hurry, but we are making good progress forward with this. Alan, I'll go ahead and ask this question I was going to hold off for Eric. Is that board directive still endorsed by staff?

I don't know that we endorse or not endorse board directives. If you tell us to do it, we do it. Is there a staff recommendation that would be counter to the approach that's being taken currently? I think if I— what we've seen is sort of the unintended consequence is if word gets out that APFC has to do something, the people on the other end of the transaction understand that. And so I do think we have plenty of assets that we should look at, and Eric and his team have done a great job of doing this, re-underwrite them, figure out what the return is going to be going forward in this environment, not what we thought 20 years ago when we bought it, but what the CapEx requirements are to realize that return, and then decide, does this meet our standards?

And if it doesn't, then we should look to sell it. And if it does, then we should look to hold it. And so I would, you know, I think a better framework is a more sort of opportunistic approach to say, look, we need to review the portfolio and decide which assets we want to keep that we think are going to outperform and which ones that we no longer feel that way or the market's changed or whatever, and then go about it that way. And to be very clear, we as the trustees stated at the time the reason we gave it till 2030 was because we didn't want to put you in that position of having to do a fire sale and not getting the value for it. But we are now 3 years away, and that gets us closer given that we— I don't even think we've gotten half of the required sale.

I don't know what the percentage is, but we're—. I think with the in-process, we're about 20%. Yeah. So we're there. Basically 20% there with 3 years to go, and you've had this directive for multiple years.

It seems to me like that's not a wise directive for you all to maintain if you have to get 80% of it in the next 3 years and you've gotten 20% in the first 3 years. 2 Years. I just want to make sure that we're not going to be selling items because of a board directive. Regardless of a board directive, the real estate team should be evaluating every— evaluating every property we have on an annual basis to see whether it makes our NPV requirements. And if it doesn't, we should be canning them regardless if there's a directive.

But we were overexposed to office space during post-COVID. We were worried about those returns, and we saw that on— and that's, that's why we gave that directive. But given that we're approaching that deadline and the public listens to our meetings, like, I'm apprehensive about maintaining that requirement. I still am supportive of every single asset should be looked at, but I'm apprehensive of you all feeling you need to do a fire sale to make the board directive from a couple of years ago. Yeah.

And I think hopefully you all will take comfort in the work Eric and his team are doing to relook at the portfolio. And we understand that the focus is on funds and co-investments going forward. We pull back on direct acquisitions through the SMAs. And so that work is ongoing, whether there's a mandate around it or not, or directive. I, I think it's still going to happen, but if you put a fixed time frame on it, there's obviously more pressure.

And so, and we've had situations where people have retraded at the last minute, we pulled it. And so we've tried not to just blow things out targeting it, but if you pull it off, I think you can hopefully take comfort that the work is still going to continue and we are going to continue to look at the assets and make sure we're only keeping the best assets. And again, you should be doing that anyway, but I want to touch face with my fellow trustees and like, I am apprehensive about such a mandate with only, like I, again, still want to insist that you're looking at them on an annual basis regardless if that is there, but I'm nervous that that could be driving activity rather than intelligent investing being what's driving it. Go ahead, Devin. I really appreciate that you brought the subject and I do think that the idea of a mandate creates difficult decisions for staff with illiquid holdings like real estate.

At the same time, Marcus refreshed my memory. It's kind of, it was May of '25 when the directive was given. So it's been 20%, we're about on track. I thought it was a couple years ago. But I think that we could probably hopefully continue on the path we're on for now.

But the recognition by the board that there could be an ask from staff to reconsider timing based on market condition or other concerns related to the evaluations that are going on with the portfolio would, I think, provide a lot of comfort for our team. Thank you. Trustee Samuels, anyone?

Well, Ethan's contemplating his question. I'll just follow up. Did we contemplate selling 100% of Juno?

I mean, or is the rate of return that good on that space, meaning we're probably paying above what we should be paying, that we, uh, decided we were going to keep that space to ourselves, or would that have been a prime area for liquidation? We never contemplated selling the third floor. I think, you know, the city and borough general would have potentially purchased the entirety of the building. There was a reluctance on my part, at least, I think staff parts, to allow for municipal government to become our landlord because you can walk by City Hall and see some of the standards that get implemented sometimes when you're in a municipal building. And, uh, wanted to maintain control of destiny to some degree with the quality of the facility.

And as Marcus said, it's a win-win in a lot of ways. It's not a drag on the portfolio's performance. We have a strong tenant in ourselves, but it's kind of a little goofy. Money flows in and flows out. In some ways, to me, like AHFC owns their headquarters, ADA owns their headquarters, and the permanent fund not owning its headquarters and having this facade where, oh, there's a problem with the bathroom, oh, we've got to call the manager.

And I mean, we can't just take care of of it because, I mean, can you call the manager and have the manager call the other manager? And then we're also, we're also not just paying ourselves, we're paying someone to manage. We're paying an entity to collect our check, send us a bill, cash the check, and, and I don't know what they're doing for us, but they get money off of the top of it, uh, for, for managing that space. Um, again, Mark has pointed out that if we were going to really discuss details of the building, that we should consider not doing it, uh, in public session, just because the deal with Juno is still pending.

Understood. Um, Trustee Sharp. I guess as we look at this, you feel like you've got enough discretion and tools at your disposal, the tracking error and everything else, to be flexible on the plan that we have if need be, start to kind of fall behind the schedules. I think they're fairly large.

Error bars there for you to use on? Yeah, I, I think we do. If the understanding is that, you know, we're, we're making progress and we're not going to get shot at the end of the time period, then that, that definitely gives us comfort. Because the one thing we can't control is what's happening in the broader market. You know, rates start to shoot up, that puts pressure, some other policy comes out, there's there's, you know, an economic slowdown and you just don't want to be forced to do things that ease those.

When rates just released from residential went above 7% for the first time in multiple years, that's probably going to have an impact on other loan rates. So I think I don't hear any opposition amongst the trustees to taking more time if you need it and not using that as a fire sale requirement, but still aspiring to try to get to that goal, but not doing it just because we said it. And is there any opposition? Go ahead, Trustee Zia. Yeah, I would agree, because if you're at 20% now, that last 20% you're in a— as well.

Yes.

So I agree, or discuss it in December, but logistically, I understand. I agree. So march forward with the direction, but don't, uh, don't— more choppy for us. Yes, thank you. Thank you.

Hey, so just a couple of last slides here to talk about where we're focused on going forward.

Um, on portfolio management, you know, we talked about a lot. We're continuing to reposition the portfolio, uh, while generating strong returns. There are going to be— because of we're adding new things and we're selling things, and sometimes we're selling a a single asset, but we're making a fund commitment, there are going to be periods where we're off the benchmark. And it could be significant because you might sell something and it comes out of our balance and the commitment we make gets drawn over time. And so, but it's a work in progress and I think we're making good progress on it.

And, you know, we noted that the new deployments focus on more value-added and opportunistic funds. With regards to funds, we're Eric and Tina have done a really good job of setting up a process, being highly selective. We're looking at leading existing and new relationships and then specialized funds to get exposure to niche sectors that we might not have much exposure to, higher-risk strategies and international markets. I think we found it's just tough to own, directly own assets in faraway markets. We use co-investments.

To gain exposure to direct opportunities. We feel like that helps manage the capital flows a bit. We also get the fee benefit that I mentioned earlier. In real estate, you don't typically get no fee, no carry, but you get a reduced fee relative to a fund.

And then just in terms of our process, we're always looking at ways to improve the investment sourcing, screening, transaction execution. We've done a good job of developing very thorough memos that capture that process. We're, I think, doing a much better job at collaborating with our advisors and being more active in what we want from them and how we want them to help us.

And we're also doing a better job, I think, capturing the data and looking at different analytics This is a big opportunity, you know, generally across— we touched on AI earlier, but across the private markets, the volume of data that sits in different databases and systems, having the AI tools that can scrape that data across multiple areas, pull in a lot of the background information and assimilate it is a huge help. And so we're, we're looking at ways to leverage that. And then just with regards to the team, I think Eric's done a great job taking over and leading the team. They've really gelled. I think everybody is, is much more on the same page and rowing in the same direction than they were a few years ago.

And we're continuing to try and make sure people are developing through attending trainings or going to conferences and meeting with managers and the property manager. Asset managers, property managers, separate account managers. So I just want to congratulate Eric on that. He's done it. He's done a great job of pulling everything together and not only keeping the team together and keeping them motivated, but getting all this work done in the— at the same time.

And if you want more, we've got an appendix that's got all kinds of stuff in it. But I have a couple of questions, but I That's right. I have a couple of questions, but I'm going to ask my fellow trustees if they have any first.

Are any of the assets that we own outright financed?

Yeah, we have, we have roughly about 20% leverage across the SMA portfolio.

Do we loan ourselves money?

Would there be any benefit to the security of us because we have other asset classes that have mortgages and other things from knowing we'll pay ourselves back? Is there— or I'm assuming we try to go for our real estate to have lower interest rates, and so we may not want that investment, but Is there, when we're going out to banks and paying them, wouldn't it be better to pay ourselves? It works until it doesn't and you have a problem. And then if you're on both sides, you know, one of the benefits of getting a loan from a third party is that if something happens and you know, if there's massive vacancies, you can say, appreciate the loan, here's the keys. Good luck with it.

And you wouldn't want to do that to ourselves. Or, you know, you probably could, but it'd be an awkward conversation.

My final question is, earlier this year, President Trump issued an executive order on residential housing and not having large entities own single-family and duplex I know that we have one of our funds that is focused on such residential housing. It's like 1% of our real estate fund. Later this year, I think it was in June or July, Congress actually passed a law putting that into place, trying to get institutional owners out of private or single-family and duplex homes. What impact is, uh, we have a large portion in, uh, residential homes. I don't know if that's had any adverse impact or if we've had to fire sale that or how, how that's working, if that came as a federal directive.

I don't know if they grandfathered folks in or if there's a, a time frame for getting out of it. Um, that is in Ross's portfolio. Um, so in terms of history 3, one of the cool investments this fund made was in 2012, we were one of the first institutional investors buying rental homes, like when it wasn't a thing, at foreclosure auction. We set up—. Jay Willoughby, the CIO at the time, set up a company called American Homes for Rent, which is public now, and it's just a big success.

And we've got a joint venture with American Homes for Rent. And Ross, what's the— I mean, it's small, it's like $200 million. Oh, we're talking about $150 And is there any law that came up in your quarterly updates where we have to sell, or is that— my understanding is that law exempted existing ownerships. It does have restrictions on new ownerships, but we're in the process of winding that portfolio down and selling the portfolio home by home. So no real impact on our part.

Got it. Thank you.

I have no other questions. Thank you, Eric. Thanks, Allen. Question for the group. I know we want to take a picture.

I also know that we're an hour ahead, and I don't know how long Scott's presentation is. If we want to do that presentation and then adjourn for the day, go take a picture. Or if we want to take a break and come back for this training. I think I prefer to do the training now, but I don't know. I got different directions from Deb, but we're an hour ahead, so I want to—.

We are an hour ahead. I'm looking at Scott like—. I will respect your time, though. I'll stay within my boundaries, which was half an hour, 40 minutes. 45 Minutes.

Okay, Scott's committed to 45 minutes. Wait, what? Did I just get your—. I heard 15. All right, I want to look specifically at Jennifer and Devin, and you—.

We're getting her there by—. That's— we're in a little bit different boat. Yeah. Okay, well, let's, uh, Scott, I was looking at agenda going like, I don't get caught up in where, where, you know, got 5 minutes for this, so Welcome, welcome, welcome, welcome.

Chair, trustees, for the record, my name is Scott Volovich. I'm the Director of Information Technology at the Permanent Fund. I also serve as the Chief Information Security Officer at the fund.

So when my boss came to me and said, hey, you have an opportunity to continue the corporate operations overview, I was very enthusiastic about it because I feel like you have an outstanding IT team here at Permanent Fund Corporation. One of the things I thought immediately, of course, is been doing this a while, and when I talk about technology, there's a possibility that you can watch eyes glaze over and lose people to the phone. And that's not a knock, that just happens. And so I thought, how do I talk about my staff, talk about some of the technologies that they're responsible for, and do it in a way that's engaging and not sleepy time. So one of the things that I decided was, I don't know if you guys have ever seen the meme that came out of the Anchorage hospital where the moose came in through the doors and chewed on the foliage.

It was just another Tuesday in Alaska. So I decided to play on that a little bit. But the Just Another Tuesday is also important because it's the second Tuesday of the month as we go through this day in the life of IT.

And that's when Microsoft releases their patches. It's always on the second Tuesday of every month. And so, and at the end of this presentation, I'm going to switch gears a little bit. I'm going to talk a little about, have a preview of some of the changes that are happening with BCDR policy in the organization. That will be brief, it's a prelude to another presentation that will be deeper and give the trustees a little bit more time to ask questions.

Um, okay, so here we are, it's 3 o'clock in the morning, it's Tuesday, um, somewhere in the building a workstation is rebooting it's rebooting because it's been patched. And scheduled jobs are updating the official record for the Permanent Fund Corporation, which is very important. They're doing that unattended, and if one of those fails, it doesn't go to a— it doesn't go to an inbox, it goes to a phone. Usually that's Sebastian calling me and telling me that one of those jobs didn't run, or Larissa. And so by 5:40 in the morning, that's the close of when the backups are done.

And I had a little note here that I left in here. It was very telling. I wanted to put in here when the last time I tested the restore point, and I couldn't find that. So empirically, I did that myself. I logged into our cloud backup program, and I actually restored one of my folders the other day.

And the work product. So, um, let's do it.

So full transparency, here's a real start of the day. 5 O'clock in the morning, um, Jim's team comes in. And the full transparency is, is I, I believe it's 4 o'clock in the morning when the bond markets are open, uh, on the East Coast. Our traders arrive, at 5 AM, and Larissa arrives at the help desk at 5 AM because— and for the next 2 hours, she is the entire IT team. But the most important thing I think she's looking for is that a lot of these machines have been patched the night before, and that's an unknown.

And so she's the tip of the spear for us, actually, when it comes to this, because 5 o'clock in the morning is a very important time for our bond traders, and if some of those patches have, uh, what we call, uh, technical term, borked some of those laptops, um, we need to know right away. And, and so that's one of the things that Larissa does every single day during the work week is she's on with 5 o'clock, at 5 o'clock in the morning with the bond traders. She's got a phone call list down below here. We're all ready, ready to act.

Lucy does a lot of other things in the organization. Obviously, she's the one— she is the one when it comes to the board meetings. She collaborates very closely with Jen. She does a lot of our trainings, a lot of our user-based trainings. She does a lot of our intranet work.

She's incredibly valuable. First through us.

And then I'm usually up earlier than this, but by 6:15 in the morning, you know, we're a $90 billion sovereign wealth fund and we have a lot of technology stack that we have to protect. And so what I'm doing in the morning is I'm looking at things from a funnel. You know, we have thousands of things bouncing off our firewalls. We don't generally pay a lot of attention to those because those are pretty normal. Firewalls are doing their job.

But we get— you step down across endpoints and internal networks, and we— I look and there's 180 things that are flagged, but a lot of those 180 things are obviously false positives. And then get down to the 19 here is what— and that's what I really start to analyze first thing in the morning. Um, and you know, first thing, 14 of them are the system erroring toward caution, okay, but they were real. And 4 of them are our own administrators doing their thing, and the AI systems caught that, flagged it. Um, and then there's one that we'll talk about a little bit later that I looked at and I decided that I need to turn that over to my security specialist and have him really go deeper on that.

I didn't feel like— obviously it was a, it was a zero-day that was hurting us, but we need to look into that deeper. So 6:15 in the morning, I'm looking at the day's security events and security logs.

The rest of the building arrives. This is obviously a very important important time because the systems are making decisions in well under a second, and that's when everybody logs in. A lot of things are happening when everybody logs in, and the goal is that nobody notices any of these things. The system is determining who the person is, who they claim to be, and is this device allowed here, and nobody notices that. Things are working the way they're supposed to work.

I wanted to talk about a little bit about the technology in this presentation too, and one of those technologies is VDI, Virtual Desktop Infrastructure. Some of the employees, most of our employees, are signed into one of 70 virtual desktops that live in our data center. They use an internet just like a laptop. They're not really signing their laptop and then they sign into their virtual desktop. This is a very important piece of technology in your organization.

We have proprietary networks that carry our trade management systems that are internal, and they never— that, that data that goes along those doesn't leave the building. It stays on those virtual desktops. So you could be working anywhere in the world working on these virtual desktops, and that data does not go physically to machines. Um, only a picture of this. So, uh, it's a critical piece.

Scott, those physically exist in Juneau? They physically exist virtually in, on physical servers in Juneau, and then there's a little mini of those in Anchorage, in the Anchorage data center too. And we, we frequently use those. So, so hold on, They physically exist virtually in Juneau. So they're not in Juneau.

They're in Juneau, but they're on some cloud that is mirrored. They're on the cloud. So we have servers in Juneau that hold these virtual workstations. They're Windows, Windows virtual workstations. They're on very powerful servers that can hold We have 75.

Each one of these virtual servers uses RAM from the physical servers and CPUs from the physical servers, but they're what we call them virtual servers, and they, they run on physical servers in the data center. And so when you connect to those, all you're seeing on your screen is, is pictures. So I understand, I understand the technology. I'm just wondering Does it actually exist in Juno? In the data center on the physical servers, and then we have in Anchorage, in the South Anchorage data center, we have physical servers that have VDI virtual servers on them to virtual—.

That are mirrored? Yeah, well, they're not mirrored, they're cloned. So I have a virtual machine that's assigned to me If I can't use that, if Juneau is down, we can log into Anchorage and I can log into my virtual server there or my virtual machine there. Yes. So we have a CLO.

Every one of us has our own virtual machines. One of those exists in Juneau, that's the primary gateway site. And then one of those exists in Anchorage. I'm just trying to— if the connection connectivity to Juneau and Anchorage go down, is there another place where those exist that, uh, that let's say Alan in Sacramento can access? So in this scenario, Alan wouldn't be able to access, uh, Anchorage either, like the city of Anchorage?

The state of Alaska is down. Yeah. So in that particular situation, he would be able to access his cloud resources, which are the Microsoft 365 tenant and all of his file shares and everything goes in the tenant. The things that are really important to the internal APFC LAN are the trade management system. Those are the two things that Alan would then not be able to access.

Other than that, he would be able to access Bloomberg. I understand. I just need to know about this specific thing. Like, if Alaska is down because of an earthquake, because of a tsunami, because of something, our client— our staff in the lower 48 are unable to access the trade management system. Those two things, you know, we use Bloomberg and we use BlackRock Aladdin, and those two proprietary networks are connected to our internal systems.

Those are the two things that would be the only thing you really would not be able to utilize in that particular situation. However, we could have Bloomberg do Bloomberg Anywhere, do web stuff, and then I'm quite sure that BlackRock would— I wouldn't say change the rules for us, but they would, they would make accommodations for us. Thank you. Yeah, good questions. It makes my wheels hurt, right?

But thank you. So Joseph Gerald, I think Kevin talked about Joseph. Joseph's leaving us in November. Joseph is one of our help desk technicians. He works with Larissa.

He's been a very critical part of our team. He is a very hands-on person. One of the things that Joseph's really kind of known for is that when we have new people coming on board, those people sit down and everything— he works with HR— but everything they've done from a technical perspective, all of their licensing, all of their groups, all their permissions, everything is ready for them. And typically when a new person starts at the Permanent Fund, they're doing the job they're being paid for by noon. And that's pretty impressive, I think.

They're, they're from a technology perspective, they're ready to go.

So then there's the month behind it. These are August numbers. These are numbers from August. We had 46 incidents or service requests from staff.

And that's not really a big number, but it's not really a big number because because things are working. It's really a good thing. Median time to resolve industry benchmarks say under 21 hours. We, our median time to resolve these things was 3.6 hours. And I also have service level agreement alerts that hit my desk.

If we haven't answered a help desk ticket in 8 hours, I know about it. And this goes along one of the things that we're very serious about and it's, you know, world-class support for world-class returns. That's very important to us, and we maintain that. 382 Assets under management for us. And assets under management for us is hardware and things that we track, things that we patch, things that we have to take care of.

It's quite a bit for a team of 7. 65+ Active positions, 4 weeks in August.

That's pretty good. Mike Prebek, also very critical. All my team is critical, but Mike, we have— we talked about the Microsoft 365 tenant. Mike is kind of the brains behind that. He shepherds that.

Everything that, you know, the Permanent Fund Corporation staff call email teams files. There's more to this, but, you know, Mike carries this— all of the automations, all of the policies that we lay down in the Microsoft 365 tenant. Mike's pretty much responsible for a lot, for almost all of this— onboarding, licensing, mailbox permission changes, configuration drifts. We have a lot, you know, we have to watch for that. Past deployments on the tenant.

He's automated nearly all of this. And so what that does is that allows a team of 7, 3 engineers specifically, to manage a really complex technology stack like we have at the firm, corporation.

Jerry Brody, you talk about key man risk. I, I think Mike is definitely one of my key men right there. Countless hours per month have been reclaimed by a lot of the automation that we talked about. And I won't go too far into this, but a lot of the PKI certificate stuff that we've been talking about in the organization, Mike's responsible for a lot of that.

Too. Um, let's talk a little bit more about what VDI does for us. Um, a disk dies in the office, so, um, a person came to us, uh, I think it has the date here. It doesn't have the date, but this was recently. We had a, um, a hard drive die in one of our laptops in the office.

This person was not working on their endpoint, their laptop. They were working in VDI. That hard drive died. We had them a new laptop. They were up and running back in VDI in 20 minutes.

And so it's really just not a, you know, we lost a commodity item and that was the laptop. But other than that, people were back up and working very quickly.

We recently had one of the finance folks move, I believe it's to Michigan. I could be wrong. I think it's Michigan. And her laptop died.

So a replacement laptop is days away from, you know, that's— those are FedEx dates, right? And so what we did was we walked— we talked her through installing the VDI client on her personal computer. And remember, the personal computer— none of the APFC's data touches her personal computer. It's just pictures of a virtual machine that are coming to her. And so within minutes of her laptop crashing in Michigan, she was back working in API or APFC systems.

Um, and so That's hugely beneficial to the organization. And then we actually did this. I'll own this one. We did this to Sebastian the other day a couple of times. We had one of our patching scripts reboot Sebastian in the middle of working.

He's smiling right now because he didn't expect me to put this in here, but he was working on the slide deck that you guys saw from him today, and because he was— and we rebooted his endpoint, he didn't lose any of the work he was doing. I think we did that to him twice. Yes, he's nodding. We did that to him twice before we fixed that, but both times he was able to boot his computer back up, log back into VDI, and he didn't lose any of his work, thankfully, or I would have heard more than I heard.

Sebastian. And here's another one I think that I like, I like to stand on this because it kind of shows one of the things that we do here in APFC IT is that we refer technology solutions. In March of 2020, I think everybody kind of knows that was right around the pandemic. These virtual desktops, these VDI machines were not very popular. They were unloved.

I was trying to get people to use these VDI machines and we just didn't really see the value in it.

And then the CEO said, everybody go work from home and no scramble, no 6-week remote work program built under pressure. We just went home and everybody logged into VDI and it just works. And we haven't gone back since that. And so I don't know, call it kismet, call it whatever. From my perspective, it showed the value of us building the system.

And so anyway, that's, that's another thing with VDI. And I'm going to tell you that VDI is a complex system. My team spends quite a bit of time administering the system. It's not a cheap system.

Think Broadcom, you know, and some of the— I'm just going to say private equity things that happened with Broadcom and some of the costs that we incur. We still have VDI. We still maintain VDI. And I think some of these examples hopefully illustrate why we have VDI and why my team continues to manage this. Uh, Micah Summers, um, Micah Summers is one of our newest hires.

Uh, he's coming over from a managed service provider. Um, he's got a lot of experience helping customers, helping, uh, end users. He's going to help us transition when Joseph leaves. And from the help desk side of things, but he's a systems engineer, and, and so he's really working on Sean Calhoun's team. And in the theme of this presentation, we're looking at Tuesday, Microsoft released all of its patches.

We have to go in and we have to make sure that when we automatically patch all these devices, that we patch the right things, and we take some of the patches out that we don't want to touch. Some of our critical servers. This is one of the things that Micah is going to be doing. Micah is going to be doing several other things, but in terms of it being the second Tuesday of the, of the month, certainly one of the things that Micah is going to be doing. And you see on this graph here, the patches release at noon on Tuesday.

Immediately we're looking to vet out the patches that we want to hit most of our machines. We sync and build that, and then at night going through to the next Tuesday, pretty much continuously, we're making sure that all of our machines, not only internally in the office but remotely, are being patched. And so it's obviously really important in today's world with all of the AI stuff that this is happening very quickly. And so Mike is really involved in that.

Here's Colleen, here's that email that I was talking about that I saw at 6:15 in the morning. That email arrives, it's an ordinary looking email message, it comes into an inbox, but AI has flagged it in 6 different systems. And the Cisco stack at the edge, on the endpoint, they all see it. If they don't like it, it lands in Splunk, which is our immutable logging repository. It's all logged there.

Our Cisco technologies have the ability to coalesce through Splunk, and they're correlating against everything else they see, and they say, yeah, no, this is a problem. And so what happens is Cody reaches into that inbox, into its quarantine. The end user doesn't see it yet, but, and he removes it and then he goes and he tunes. He works with the AI systems and he tunes this to make sure that it gets caught sooner. One of the things that Cody, Cody does, Cody does several things obviously, but these are the things that we do on the daily.

These are the things that we're looking for every single day for a $90 billion sovereign wealth fund with, quite frankly, a large bullseye on its back when it comes to security.

So Joseph and Larissa, you know, one of the things that we're doing internally is we're having— we have some internal AI capabilities. And when the, when the help desk queue goes quiet, Joseph and Larissa are documenting some doc— they're creating documentation that's not the friendly user-facing version. This is documentation in Markdown files that will be fed into an AI system that really understands the nuances of the things that they do every single day, with the idea that eventually we're going to have a place where our end users can go in if they just have a quick question. They can go on and get answers very quickly because all of this documentation is part of the corpus of knowledge that a chatbot has. Not only that, we're tying this into the entire history of every problem that has been solved by a helpdesk ticket at this organization.

And I started helpdesk in this organization in 2017, so that's a lot. So there's a tremendous amount of information here that's going to go into a chatbot that users will be able to use very quickly to be able to answer some questions. And if that doesn't answer the question, that bot's going to say contact our folks. You know, it's going to be an assistant that walks a person through a process that would otherwise up in a ticket, right? And then they have to wait.

So everybody here has Copilot for general work, but this, this knows our processes and it's, it's, it's in our history and takes things to a little bit different level from a, from a help desk perspective.

Back to Cody.

One of the things when we had our latest audit was KPMG lined out something that was redeemable. It wasn't, you know, super critical. One of the things was that we were not— we were not testing against ourselves as much as we should be. And in today's world, we have a lot of technologies to do that, a lot of AI-based technologies hear AI a lot. Well, we're really kind of, uh, adopted that philosophy from a security perspective, that, yeah, permanent vulnerability, because you need to fight fire with fire in that respect.

But in reviewing that, um, that vulnerability— they called it a vulnerability— and, and we, we purchased a tool. We got it listed here in the middle. It's called Horizon3.AI, and it's been incredibly productive for us. And what it does— when I say up at the top, proof and picking the lock ourselves— we have the ability, and Cody runs these, we have the ability to penetration test our systems from the outside, also penetrate our, our systems from the inside. And really, essentially what this is, is there's a cloud VM here.

I am talking about virtual machines again, it's a virtual machine on real hardware in the cloud that we use that has a plethora of attacking capabilities to attack our external DNS system, our external Microsoft Entra ID systems, our domain, and of course our firewalls. And we do this quite often, and we find these vulnera— we want to find these vulnerabilities because obviously before anybody else. And so we are doing that both internally and externally. Internally, it's a situation where we, we call it, we call it an assumed breach. We assume that somebody has breached our internal firewalls and we run essentially all of the tests, attacks, internal So, we do this with the most current, the latest AI tools.

If we have vulnerabilities, you can imagine that they find them rather quickly.

So, that's what Cody's doing, among other things. Sean Calhoun, he's— Sean Calhoun is my Chief Systems Engineer. You don't see him in view today, and today, today being Tuesday, the second Tuesday of the month, the traders are gone, the building's quiet. But what Sean's doing is he's looking down the field in terms of, uh, uh, whose servers are approaching end of life, uh, what critical systems need upgrading, uh, When is the vendor going to stop staying behind these bills? How much do we have to pay to make sure that we continue to do that?

You know, we're in a— we're in an organization where you don't just get to call an outage to make changes or make patches happen. Everything has to be very, very planned, obviously.

Sean's looking down the field, so to speak, on when we can do that, making sure that we're, you know, we're ahead of schedule on critical vulnerability patches and ahead of schedule on hardware capability because, you know, hardware And so I will tell you that all of the decisions that I make in this organization from a technology perspective, John and I have had conversations about every single one of them, and he is a critical advisor to us. I will tell you that some of those discussions are rather robust.

We might disagree, we might not, but I listen very closely to have to weigh a lot of things. You know, today's world of IT budgets, it's become challenging. A lot of the things you want, you know, it's just not tenable anymore from a budgetary perspective. So what we do is we sit down and talk about the things we need. And, you know, Sean, like I said, Sean is a critical advisor for me, and he is the guy that is looking down the field, and he's He's making sure that— and I got the rule of thumb here, but he's making sure that there's a Tuesday next year that's just like this Tuesday we have today and helping me make decisions to that end.

Joseph leaves at 3:30. This is another thing that's pretty unique to the permanent fund. In typical organizations, you have systems engineers that they don't pick up the phone, they don't pick up the help desk phone, right? There's, there's 7 of us and we all lean in to help desk when we need to. Every single one of us.

When, when our folks walk down to that corner of the building, it doesn't matter, it's, it's how the closest person reacts and says, hey, how can I help you, right? It's not just the help desk team. So Larissa is on at 5 in the 7 in the morning. Joseph's on at 7 in the morning. Joseph leaves at 3:30.

Risa's gone. The engineers then step in and we're monitoring the help desk and we're monitoring the help desk software and we pick up that slack.

So I felt like that was a really important thing to say.

4:30 PM, the doors close.

Workstation maintenance, patching, that starts happening again at 5:30 PM. It's Tuesday, new patches are happening. We really have to watch that because patching is as incredibly important as it is, it can also break things. Microsoft has a reputation and sometimes I'm wondering They're testing, or they're testing, but, um, the patching is important and it'll break things. So 5:30 PM, the workstations are being patched overnight.

Scheduled jobs are pulling the day's data in from outside. That doesn't stop, uh, pulling data from BNY, from Bloomberg, from BlackRock. All night, Cisco AI security stack keeps looking. Splunk keeps recording. All of this is happening.

Then in the morning, Tokyo opens. 3:00 AM in the dark, the whole thing begins again. For the Permanent Fund Corporation.

This slide, I think, I think this slide, what I really want to show is that bottom blue line. What's really important is that 7 people in this organization maintain that bottom blue line, and that's that the systems never stop here.

You know, there's the people, and that's, you know, represented by the different, different bars here. But it's a 24/7 system.

My other hat, I'll talk about that. I waffled about putting this in here, but I think I need to. My hat as the Director of Information Technology at the Alaska Permanent Fund Corporation is to provide continuity. You know, there's a product that the IT team delivers that the fund's business is done with every single day. And yeah, I need to make sure that these 6 people can do tomorrow what they did today.

That's kind of my job and provide technology answers when the business needs one. And mostly that this team has what it needs every single day. And that's building a zero-based budget every year, which is incredibly— technology budgets used to be very predictable, and that's just not the case anymore. And as we become, you know, more technologically advanced at the Permanent Fund, I rely on my team more and more and more to really help me understand what what we need and what we don't need.

Everything I've just described happened yesterday. It will happen again tomorrow. And hopefully none of it reaches your agenda or Devin's in the same way it did in March 2020. When we all logged into COVID and we just— we didn't log into COVID, we logged into BDI because of COVID And that's the product that 7 people make at the Department of Homeland Corporation.

I'm going to transition now to those slides that I promised in the beginning and move quickly because I know we want to take advantage of time. Um, 3 big things changed with the business continuity disaster recovery plan and policy. This is a, this is a short prelude to something that we'll see in February. Um, we deserve, you deserve, the trustees deserve to see this a little bit more in depth, but Sebastian and I and, and Scott Jones felt We wanted to throw these slides in here to kind of prelude that. 3 Significant changes to the plan.

First of all, it hasn't been updated since 2002. And what I mean by updated, I mean completely renovated. And some of the big things that have happened, we've moved our DR site from Fairbanks to Anchorage. So that's one of the big things.

Our recovery objectives have changed a little bit. I feel like for the better. Same sort of protection, just on a different, just kind of a different mechanism. And then crisis communications, Pauline and Juliet have really made big strides, but sort of outside of the BCDR plan. And so we've integrated those.

So Why the plan was revised. Like I said, 2022 was the last full technical revision of the plan and a lot has changed. Not only did we move out of Fairbanks to Anchorage, but we've moved a lot of things to the cloud and a lot of that has really— a lot of the technological things have changed how we do things in the DR side.

32 Services now mapped and named to a recovery tier. Now that's something I'm not going to go into deeply here, but we have two things. We have RTO, which is recovery time objective, how fast we get a PFC backup and running. And then RPO, which is, is data loss. RPO is about data loss.

So RPO and RTO for certain things, still 2 hours. Data loss objective. Recovery point objective is what I was just struggling with. Recovery point objective is we can recover back to 2 hours. We don't lose any more data than 2 hours ago, which I think is reasonable.

Recovery time objective is how fast we get you back going. That's changed for some of the things. It didn't make sense. It makes sense for us to keep 2 hours for the investors. The investors is what we— investing is what we do.

And so we wanted to make sure that we can get those investors back online in 2 hours. But IT patching and services, it didn't make any sense to make that still 2 hours. So those are the types of things we've changed.

So that's the recovery clock that didn't fit every system that we've made changes to. And the crisis comms, it matured a lot. Like I said, Pauline and Julia did a lot of work, and they— but it matured outside of the BCDR policy and plan. And so one of the things we've done is we've taken everything they've done, we've integrated it into the policy, um, where, where we really need it, um, in, in a situation where we have that, um, And this slide is— it goes down the same things that I just said. It just gives a little bit more meat to the 2006 revision.

I didn't intend this to be a big Q&A, so I just wanted to throw this out there and let you guys know that in February we're going to have a rather extensive executive session review of this plan. I think it's important. Devin has already signed the revisions, but I think it's— I feel so does Sebastian and so does Scott Jones that it still warrants you guys looking over it and being comfortable with it and being able to spend time with it and ask questions.

And that's it. That's it. Excellent job, Scott. Thank you. Couple of questions for you.

First of all, obviously we won't know who our cybersecurity chair is, but do you believe that there should be a vetting before the full board by the cybersecurity committee of this plan that we're going to be seeing in February? From a committee perspective, since that's part of the charge?

Yeah, I'm taking a second here because I really want to answer this with some thought. Does it land in that arena? Maybe. I feel like this is, this is 100% business continuity related.

Um, from a, from a cybersecurity perspective, everything applies to the changes and everything we've made in the BCDR plan in the same way they always have. Now, um, once again, I'm, I'm, I'm trying to be very thoughtful about your question. Yeah, I don't need an answer today, but just contemplate it because if it's it's coming before us in February, we're going to have likely new trustees at that point and likely, you know, potentially new chair of that committee. And I get it, it's business continuity, but it's also part cybersecurity. So just contemplate it and like, and revert.

I mean, the way we've discussed it to this point was that it was an informational item, um, that it's a policy that's established by the executive of the corporation. But certainly, if the— I mean, I think that's why Scott's struggling, because it's not— we don't have an objection to the board being as aware as possible of the intention and the abilities of the corporation to withstand any business disruption. Sure. Um, but, but it's— we hadn't contemplated it, and there's no structure for it to be part of the board's approval processes at this point. Well, the— I'm happy either way, uh, and whatever you recommend.

I, I get, I get what you both have said. The only other question I have is, first of all, kudos to your full team And thank you for the continuity that they bring to all the operations at Permanent Fund. I know that we're probably too late because the, the Wayback Machine exists, but this presentation is now out there for the world. And if bad guys want to know who's working at what time and when— I'm actually serious. I hadn't contemplated that it now exists in the world for people to see, to potentially target and say, you know, mimic Larissa's voice at 5 in the morning.

And I probably should just shut up right now. Yeah. Is that why the UCDR policy is confidential? And we can step forward and execute. But again, a lot of the details of the organization about when people are working, so they're there.

And so, like, I don't know if we want to change what's up on our website and remove this section. Again, Wayback Machine exists. Someone that wants to get it probably can, but it might be worthwhile removing this from the PDF that is permanently put on our website. If we can do that, Mr. Counselor, as a, uh, co-production.

Yeah, I, I I thought this— I'm thinking in parallel with you. I thought that when I brought this to bear, I thought in parallel with you on this. And I will tell you that if there's anything here that was in the presentation that offered a vector, I would not put it in. If we can't protect because the things that I had in the presentation, we have other issues. I get it, but AI is so powerful and it's mimicking people's voices, and when they have information that normally we would have just said it— that was my only concern.

But kudos to your team, uh, Larissa, and all of those that are online listening. Thank you for your support of the investment teams, and, you know, really good job, Scott. Any, any questions or comments from trustees?

Alrighty, with that, we are going to adjourn for the evening until 8:30 tomorrow morning. We will be taking a staff picture at the large gold pan And those that want to ride can ride, those that want to walk can walk. Otherwise, Jennifer, are we okay to leave things in this room?