Alaskans Applaud Fund Manager’s Performance

Byron Mallott has an investment manager’s dream job, running a King Midas of a fund that keeps piling up money and is revered by its half-million shareholders.

Mallott heads one of the world’s most unusual savings accounts, the Alaska Permanent Fund Corp., set up by the state in 1976 as an income source once Alaska’s oil money runs out.

If the program had remained just that, a rainy-day account for government to pay its way, it would have had all the luster of, say, the average public pension fund.

Two things happened in the last 15 years, though, to hold the public’s interest in the fund. First, through ongoing contributions of excess oil revenue and heady investment markets, the Permanent Fund has grown beyond planners’ expectations, approaching a book value of $20 billion.

Second, fund caretakers started siphoning off some investment profits in 1983 to pay annual dividends to almost every Alaskan, culminating in this fall’s record payout of $1,130 per person.

It’s pretty hard not to be a well-liked fund manager when you’re passing out free money every year. People become eligible for the dividend after living in Alaska for a full calendar year; about 90% of the state’s 600,000 residents are eligible this year.

Mallott doesn’t think of the money as a handout. He views it as sharing the state’s wealth while building Alaskans’ respect for their natural resources and a commitment to preserving them.

“The dividend is not an entitlement or a government payout,” Mallott said. “It’s a form of participation by every Alaskan. It’s classless. The most wealthy banker in Alaska takes the same pride of ownership in the resource as the welfare mother.”

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Mallott became the fund’s executive director in February 1995. Some critics said his appointment by the fund’s board was a political payoff after Mallott had campaigned for Gov. Tony Knowles. A month before Mallott’s appointment, Knowles had stacked the fund’s board with his own appointees.

Yet few could challenge Mallott’s qualifications. For 20 years, he was a board member and later chairman and president of Sealaska Corp., one of the most profitable native companies set up under the 1971 Alaska Native Claims Settlement Act. He also served eight years on the Permanent Fund board, including three terms as chairman.

A former president of the Alaska Federation of Natives, Mallott was the state’s first commissioner of community and regional affairs and has held board posts for banks, airlines and other businesses.

Mallott, 53, was born in Yakutat, 200 miles northwest of Juneau, the ancestral home of his mother’s Tlingit Indian clan. His father ran a general store and was Yakutat’s mayor for 15 years.

“We ate everything that didn’t sell at my father’s store,” Mallott said. “We ate a lot of tripe and pork hocks and on-the-edge vegetables.”

When his father died in 1965, the 22-year-old Mallott decided to leave college, return home and run for mayor in his father’s place.

“Simply because Dad had died, I felt I ought to follow him. Being mayor, that is, not in death,” said Mallott, letting a trace of humor show through his normally stoical manner.

Mallott won but gave up the job half a year later when then-Gov. Bill Egan hired him as an aide on local-government issues.

Similarly, Mallott was elected mayor of Juneau in 1994 but quit soon after he was appointed to run the Permanent Fund. Mallott had wanted to keep both jobs but resigned under criticism that he could not do both.

Through all his occupations, Mallott continues to work occasionally as a commercial fisherman, although his fishing time has been limited by the demands of the Permanent Fund. He said he sometimes comes to work at 4:30 a.m. with his investment staff, who must rise early because of the four-hour time difference between Alaska and the New York markets.

Alaska established the fund hoping it would grow large enough to become a perpetual money machine long after the oil is gone. Mallott and his wife applied that same savings principal to their five children. Nearly all of the children’s Permanent Fund dividends over the years went into college funds “except for a token amount they could take and blow,” Mallott said.

The fund has paid about $10,000 to each Alaskan who has received dividends from the start. Those payments have given Alaskans a vested interest in making sure the fund is managed prudently.

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Although oil money still accounts for four-fifths of the state’s revenue, production and income have been declining as Prudhoe Bay, Alaska’s main petroleum field, peters out. The Permanent Fund has yet to be touched for state expenses, but Alaska leaders say the day will come when some of the fund’s income will be spent for government.

Luckily, the fund has ballooned faster than anyone expected. Since Mallott took over as executive director in February 1995, the fund has coasted to record profits as investment markets boomed. For the first time this year, the fund’s earnings of $1.8 billion exceeded the state’s oil income.

“It’s been managed quite prudently, and I think Byron has done a splendid job since taking over,” said former Gov. Jay Hammond, who oversaw the fund’s creation.

Mallott politely declines to take credit. “If the fund hadn’t done well in this market, we all should have been taken out and shot,” he said.

Still, colleagues say his focused management style and eagerness to broaden investments boosted the fund’s performance. Mallott also has brought welcome frugality after his predecessor, Bill Scott, resigned amid criticism that he spent too much on travel and renovations of the fund’s offices, fund caretakers say.

“He’s provided stability at a time when we really needed stability,” said Grace Berg Schaible, who heads the fund’s board of trustees. “Byron brought us all to the point where we could further diversify our portfolio, and he’s been responsible for reducing expenses, particularly our management fees.”

Running the fund is a job Mallott always coveted. He beat out 41 others who applied when the post came open late in 1994. Though he doesn’t consider himself a role model, Mallott takes pride in how far he’s risen from his native roots.

“That this little old Tlingit boy from Yakutat could be sitting behind this desk, running this big fund and loving it, I just say, ‘Wow!’ ” Mallott said. “It’s pretty cool.”