Alaska Permanent Fund board to consider changes after trustee concerns leak • Alaska Beacon

The Alaska Permanent Fund Corp. Board of Directors is considering changing the policies it uses to govern itself following concern from its top investment chief, in leaked emails, that a director has conflicts of interest in using his influence to try to affect how the $80 billion fund is invested.

The changes would involve information technology, “interactions between trustees and information that may be provided by trustees” and relationships between trustees and fund staff, the board’s chairman said Wednesday, Ethan Schutt, after the board held a two-hour discussion closed to the public. .

Trustee Adam Crum, state revenue commissioner, noted the importance of the fund to the state. It funds the majority of general revenues in the state budget, as well as annual dividends paid to each eligible resident.

“We’re going to work on this to make sure we rebuild the public’s overall trust in the organization,” Crum said.

The board held a special meeting at short notice after the email leak, during which the fund’s chief investment officer, Marcus Frampton, raised concerns with other fund managers that the Trustee Gabrielle “Ellie” Rubenstein had held investment staff meetings with people who invested in her own fund. and his father’s businesses. The escape was the first reported on April 27 by political writer Jeff Landfield for his Alaska Landmine website.

Before going behind closed doors, trustees were divided on whether the main concern was the leak or the effect of trustees’ behavior on the fund. Trustee Jason Brune focused on the leak, while trustee Craig Richards raised broader concerns about trustee behavior and said he opposed holding the special meeting without further of deliberations. He attributed the leak to Permanent Fund staff trying to protect themselves.

“I’m less concerned about the leaks than I am about fixing the behavior that caused the leaks,” Richards said before the closed discussion.

Crum said Richards’ statements were the first time he had heard at a board meeting concerns about trustee behavior.

Email leaks

Rubenstein is the co-founder and managing partner of Manna Tree Partners, a private equity firm that invests in food companies, such as organic egg producer Vital Farms and kombucha maker Health Ade. Private equity is a term for investment funds shared by organizations and wealthy individuals, which are not publicly traded and are less regulated than stocks.

Since joining the Permanent Fund’s board in July 2022, Rubenstein has publicly expressed interest in having the fund invest more in private equity and assets known as “private credit,” the term designating large loans made by organizations other than banks.

Emails from senior executives indicate that Rubenstein arranged a meeting between an investment analyst – a lower-level fund staffer – and his father David Rubenstein, co-founder of one of the largest private equity firms in the world. world, the Carlyle group, and who Forbes estimates being one of the 400 richest Americans.

Ellie Rubenstein let fund staff know that her father was not impressed with the analyst and that she believed the analyst should be fired, according to the leaked emails.

Rubenstein also questioned whether the fund had the right team to manage private equity and whether the right people were overseeing private credit and real estate investments.

In an email to the fund’s risk management staffer, Frampton wrote of Ellie Rubenstein: “As we all know, she has made dozens and dozens of fund manager recommendations. investment during his 18 months on the APFC Board of Directors. Many of them involved the private credit industry and my team declined to pursue them all.

He then described three particular references:

• Rubenstein’s “categorical pitch” for the fund to invest with TCW, a subsidiary of the Carlyle Group whose principals are limited partners of Manna Tree Partners;
• A request from Rubenstein for fund staff to review a private lending company run by a Manna Tree client, whom she asked staff to meet with; And
• Rubenstein is frustrated that the Permanent Fund’s private credit manager is not taking a more serious look at Goldman Sachs’ private credit funds. Frampton said it also appears Rubenstein has a pre-existing relationship with Goldman Sachs.

“I think we will have to see how aggressive she is in these efforts in the future,” Frampton wrote in the email. “But I would say that a reasonable person looking at the facts here might question whether she has conflicts that obscure the independence of her positions here. A reasonable person might also ask whether they would be more enthusiastic about FPAC staff managing private credit investments if we had chosen to invest in the private credit funds of TCW, Churchill, or Goldman Sachs. A reasonable person might wonder if his current position is some sort of retaliation for rejecting these investment credentials.

Frampton also said in a January email that some analysts were skeptical of private credit, pointing out that the chairman of Swiss investment bank UBS had said there was a growing “bubble” in private credit. Private credit nearly doubled in volume over four years from the start of 2020, reaching $1.7 trillion globally by early 2024, according to data cited by the Federal Reserve.

Frampton said in one of the emails that Rubenstein told him that Gov. Mike Dunleavy would not appoint Schutt to the board when his term ends in July. Schutt said at the end of the meeting Wednesday that he was aware of staff concerns about Rubenstein’s behavior at the time the emails were written.

Permanent Fund Executive Director Deven Mitchell, the Permanent Fund’s top executive, acknowledged during the open portion of Wednesday’s meeting the seriousness of the leaks. Mitchell said all fund managers who received the leaked emails denied disclosing them. He also said the fund’s technology team believes there are limits to the scale of leaks that can be stopped, noting that even the U.S. Department of Defense faces data leaks.

Rubenstein’s position

Rubenstein did not address those concerns during the public portion of Wednesday’s meeting.

She defended her actions in a written statement sent in response to an interview request:

“Introducing and connecting permanent Fund staff to investment companies so they can explore opportunities is an appropriate and valuable role and is common practice among state pension boards, endowments and sovereign wealth funds” , she said. “In this role, I have always followed the ethics rules and disclosure requirements of the Permanent Fund Board, and was unaware of these concerns regarding my tenure on the Board.

She criticized the leak.

“That someone leaked internal messages containing confidential information to the media is worrying; This is a violation of policy and trust, and it distracts from the important work that Permanent Fund trustees and staff do for the State of Alaska,” she said. declared.

Rubenstein supported the fund’s goal of reaching $100 billion in four years, which would require the fund to significantly increase its annual growth from what it should have with its current assets. Although the board adopted the four-year goal, it did not change its annual goals or current asset allocation. State law places limits on how the fund can borrow money to invest. Rubenstein supported the fund by borrowing money more aggressively for investment. State law limits borrowing from the funds, and fund staff said the law should be changed to borrow significantly more.

Before Wednesday’s closed-door discussion, Richards called for board policy changes to better define expectations for trustee behavior.

“Ultimately, it’s governance reform that’s going to be necessary to address the fundamental underlying problem here,” he said.

Richards said the volume of a trustee’s recommendations made the fund’s investment staff uncomfortable and that the trustee’s behavior continued after hearing about the staff’s concerns. He added that directors’ direct communication with staff leaves fund managers feeling “a bit weakened”. And he added that employees feel threatened in their jobs when dealing with trustees.

Richards also alleged that the board was discussing more things “behind closed doors” than before.

Brune denied violating open meeting laws and called Richards’ statement about the secret discussions “pretty serious allegations.” In the past, Brune has supported the board’s exemption from the state’s open records law.

Before the board’s discussion, there was a brief public comment period during which Schutt read an email from a member of the public calling on the board to remove Rubenstein, citing a provision of the state ethics law that prohibits public officials from using their offices for personal gain. gain, while another email asked him to resign. The six directors are appointed by the governor, who can only remove them for cause.

The board voted 4-2 to close the proceedings to the public, citing a provision of state law that says government agencies can discuss “matters the ready knowledge of which would have occurred” in closed session. clearly a negative effect on the finances of the public entity. »

Richards opposed the motion, which allowed the board to remove from the meeting an attorney charged with advising them to adhere to the state’s open meetings law. Richards later said the attorney remained present throughout the discussion.

Aside from Rubenstein, all of the trustees who approved holding the closed session are current or former members of Dunleavy’s cabinet: Brune, a former environmental conservation commissioner; Crum; and Transportation and Public Facilities Commissioner Ryan Anderson. The two opponents – Richards and Schutt – are not part of his cabinet.

The company said no external breach of fund data had occurred.