➤ Alaska Permanent Fund capitalized on coinvestment opportunities amid slowdown in distributions

➤ Focus on long-term investments, not short-term changes

➤ Industry seeing more deal flow

Interest rates, rebounding private equity deals and the potential consequences of the US election were hot topics at SuperReturn North America in New York City.

The annual event draws private equity as well as institutional investors, a group that this year included the Alaska Permanent Fund. The $80 billion fund, established in 1976 to invest the state's oil revenues, was represented by Allen Waldrop, a deputy chief investment officer leading the fund's private equity team.

Waldrop met with S&P Global Market Intelligence on the sidelines of the conference. An edited transcript follows.

Deputy Chief Investment Officer Allen Waldrop. Source: Alaska Permanent Fund.

S&P Global Market Intelligence: Maybe the biggest topic for limited partners (LPs) is the slower pace of distributions since 2021 and what that has meant for your ability to allocate to new funds. We've seen private equity fundraising at a slower pace for a couple of years. How is this all playing out for Alaska Permanent Fund?

Allen Waldrop: Think of driving down the highway. Your foot is on the gas. If you want to speed up, you press down a little bit harder. If you want to slow down, take your foot off the gas, and then maybe you brake a little bit. But you don't stomp the pedal, and you don't slam on the brakes because if you slam on the brakes, you're going to be out of the market. If you stomp the pedal, it's a cyclical business, and you're going to get overallocated and shut out.

What we've tried to do is be very conscious of our pacing. How that's turned out for us, in this time when people are overallocated and worried about distributions, we've been cash flow positive in our private equity portfolio. So, more distributions than contributions for 13 of the last 14 quarters.

You combine that with a more challenging fundraising market, and we've been able to get into funds and upgrade the portfolio. We've had a lot of coinvestment opportunities we've been able to capitalize on. So times like these give you opportunities, too.

That sounds unusual for an LP. Am I wrong?

I think it is unusual, but I think it's because we've been steady.

If you look at the last five to seven years, private equity became very popular. People who were in it increased their allocations. People who weren't in it got in. They saw the higher returns, they saw money coming back quickly, and I think people forgot that it's private, it's illiquid and you're going to be cash-flow negative — especially when you're building a portfolio, when you're ramping up for a long period of time.

When you look at how people ramped up right before a downturn or a slowdown in distributions, it put a lot of people in a bad spot.

Another big theme for institutional investors in recent years is how they're looking at private equity versus some other asset classes, particularly private credit. Are you reviewing that balance of allocations and the relative performance of those pieces of your portfolio in a higher-for-longer interest rate environment?

It has much more to do with our portfolio and the returns we need to deliver, the risk we're willing to take, the volatility we're willing to take, the illiquidity, and making sure we've got the right mix for us. It has much less to do with what's happening in the private equity market or the private credit market with rates and things. The important part is making sure you understand what each asset class is supposed to be doing for the broader [Alaska Permanent Fund portfolio].

Private equity is supposed to be taking significantly more risk than most of the other asset classes with a focus on long-term gains. Private credit is much more income-oriented — less volatility, don't lose capital, that kind of thing.

For us, it's not a matter of thinking where interest rates are going or not going. We just need to be able to say, "What risks are we willing to take? What's the return we're targeting?" And then stick with that and find people who are good at managing in different environments.

You said something interesting on stage during a panel discussion. In response to a question about the US election, you said it is very hard to capitalize on short-term changes — which seemed like a message to hold the course in the face of what potentially are some big policy changes in the US, including new directions on regulation that could have an impact on M&A activity.

Look, on the private equity side, we can decide what we want our target allocation to be and what we want the pacing [of fund commitments] to be. But if we want to invest in the best managers we can, we have to wait for them to be in the market. And then, once we give them money, we have to wait for them to finish their fundraising and deploy capital over several years, sell over another several years. Those are all things we can't control.

There are macro trends, but they have less to do with who's in the White House. Like data centers, like the impact of AI on power consumption and the electrification of power consumption. There are things you can play that way. But in terms of who's in the office, a lot of stuff gets said during the campaign on both sides. Implementing those plans takes longer. It gets muted because people start to realize the actual consequences and the unintended consequences.

It's not like we're planning for higher rates or lower rates or who's going to control the Senate and the White House. You can't plan for that.

We're past the US election, so maybe that takes some uncertainty out of the M&A markets. In private equity, you have fund managers who need to make some decisions. They've got companies they need to exit and dry powder that has been sitting for a while that they need to deploy. Are you seeing any signs yet that there will be a pickup in deal activity for private equity?

Once people felt comfortable that the interest rate increases had ended, we started to see an increase in deals. And now that they're going down, you see more of an increase.

I don't know that the election has driven anything to this point. What you can look forward to, if I had to guess, is maybe a more favorable tax environment and maybe less regulation in certain industries. That would point to more dealmaking or the pace of dealmaking increasing.

We're seeing more deal flow. I think the distributions take a little bit longer. But we're seeing more co-investment opportunities. We're seeing the pace of capital calls pick up.

We're not necessarily concerned about the distributions because we've been in fine shape already. We don't want managers to force companies out. We want them to do what they think is best and maximize returns to us.