It’s considered very good news when Alaska Permanent Fund Corporation (APFC) managers announce quarterly earnings of $2 billion. Whether it boosts our dividends or becomes a source of revenue to run state government, we want that pot to keep growing. But like most things in a society ruled largely by economics, we almost never look beyond the numbers. And even if what we don’t know doesn’t seem to hurt, it’s no excuse for benefiting from the misfortune of others.
When the Alaska Journal of Commerce reported APFC’s earnings last week, the article mostly discussed fund balances and quarterly earnings. It did mention diversification of investments and Gov. Bill Walker’s proposal to use a portion of the earnings to pay for state government. But it did so only in terms of possible impact to the ledger’s bottom line.
The article concluded with returns from different sectors. “Real estate holdings” it tells us “returned 2.27 percent.” That’s it. Just the numbers, as if there’s no people on the other side of the businesses Alaska money is supporting.
I know. The Permanent Fund Board’s guiding philosophy mentions nothing about choosing businesses based on their integrity or the value they contribute to society. The legislative defined goal is “to maintain safety of principal while maximizing total return.”
One real estate investment I feel is worth questioning is American Homes 4 Rent (AH4R). Last month the Alaska Dispatch News called AFPC’s initial investment in this company “a winning bet.” It’s seen a 30 percent rise in stock values since 2013. In September, after selling just over half its shares, AFPC netted $325 million.
The investment wasn’t just in the company’s stock. In 2012 AFPC put up $600 million for the company’s startup and two years later formed a joint venture with AH4R. Unlike most stock market investments, this was also a business relationship.
So what is Alaska’s money directly supporting? The acquisition, renovation and leasing residential properties, most of which were empty homes with foreclosed mortgages following the subprime lending crisis.
Now how would any of us feel if one of those homes contributing to the outstanding returns on our investment had once belong to a family member? Or if a friend was one of the many renters nationwide accusing the landlord of rigging fees and neglecting maintenance?
AH4R was created by a California billionaire experienced in the rental market. B. Wayne Hughes Jr. began earning his money running a family-owned business that rents storage facilities to the public. He’s not a bad guy. He’s used some of his wealth to create Serving California, a foundation that aids crime victims, rehabilitates ex-offenders and assists veterans with post-traumatic stress disorder.
But like a vulture, Hughes circled the foreclosed properties with a focus on feeding himself. And APFC helped make it a feast.
Another APFC investment that poses an ethical dilemma is Alexion Pharmaceuticals Inc. Since 2012 this company has seen it share value increase about 40 percent. But a lot of its profits came from charging over $400,000 a year for Soliris, a drug they developed for people with a rare blood disease.
Currently APFC has nearly $5 million of unrealized losses on this investment. Meanwhile Alexion’s CEO is reportedly worth $170 million. And this week the company was hit with a class action lawsuit alleging “revenues from Soliris sales were unlikely to be sustainable; and that as a result of the above, Alexion’s public statements were materially false and misleading at all relevant times.”
Let’s hope Juno Therapeutics doesn’t go in that direction. The Seattle-based biotech company is a collaboration of the Fred Hutchinson Cancer Research Center, Memorial Sloan-Kettering Cancer Center and Seattle Children’s Research Institute. They’re trying to develop a method to genetically program cells in a patient’s immune system to chase down and kill cancer cells.
APFC earned more than $200,000 on that investment and still own stocks in it. But that’s a business I want to succeed even if they, and AFPC, wind up losing money in the long run.
My intent here isn’t to criticize anyone at APFC for their investment decisions. They’re just doing their job. And doing it well when they help the Permanent Fund grow.
I’m highlighting these stories to make a point that applies to us all. If we don’t want to be to associated with the profits of predatory businesses, then we need to define successful investments as putting money in companies that make a valuable contribution to society while showing compassion for the misfortune and suffering of others.
• Rich Moniak is a Juneau resident and retired civil engineer with more than 25 years of experience working in the public sector.
