The Trust Principal
The principal (or “corpus”) of the Permanent School Fund consists of cash generated from activities on school trust lands. The Minnesota Constitution prohibits the principal from being spent—the state must hold it in trust forever.
The principal is invested to produce a growing level of spendable income within the constraints of maintaining adequate portfolio quality and liquidity. New investment policies enacted in 1997 allow the principal to be invested in a balanced portfolio of common stocks and bonds. Common stocks provide the potential for significant capital appreciation, while bonds provide portfolio diversification and a more stable stream of current income.
The State Board of Investment currently manages all assets of the Permanent School Fund. The stock segment is passively managed to track the performance of the S&P 500. The bond segment is actively managed to add incremental value through sector, security and yield curve decisions. The fixed income benchmark is the Bloomberg Barclays U.S. Aggregate. The total fund benchmark is a combination of the fixed income and equity benchmarks, weighted according to the total fund asset allocation targets of 2% cash, 50% equity, and 48% fixed income. The actual asset mix fluctuates.
Reflecting significant revenue generation along with strong market gains over the fiscal year 2010-20 time period, the market value of the PSF principal increased more than 140%, from $674 million to $1.6 billion. These financial investments generate annual income from interest and dividends, which is allocated semi-annually to Minnesota's school districts on a per-pupil basis.