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Divestment ‘a waste of time’ as response to climate change

Divestment ‘a waste of time’ as response to climate change | Timberland Investment | Scoop.it

Divestment is a “complete waste of time” as a response to climate change risk, said Robert Waugh, CIO at Royal Bank of Scotland group pension fund, with other pension fund executives largely sharing his sceptical stance.
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RBS’s Waugh was the first to dismiss divestment during a panel discussion at the Pensions and Lifetime Savings Association (PLSA) investment conference in Edinburgh. Waugh said it was better to engage with companies or “provide capital to areas that are helping”.

 

The RBS fund is part of the ‘Aiming for A’ investor coalition that encourages companies to provide better information on their exposure to carbon risk. The coalition has lodged shareholder resolutions at Glencore, Anglo American and Rio Tinto.

 

As to the second aspect, Waugh said there were “loads” of investment opportunities allowing pension funds to fulfil their fiduciary duties of “enhancing return per unit of risk” while at the same time funnelling capital to new areas of the economy.

Windfarms, for example, are a “great investment for pension funds”, he said.

 

The RBS fund is also looking at solar and has a large sustainable timber portfolio, noted Waugh, with waste-to-energy also an interesting area.

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Lothian sees returns boosted by listed infrastructure, timber

Lothian sees returns boosted by listed infrastructure, timber | Timberland Investment | Scoop.it

Strong performance from listed infrastructure and timber holdings saw Lothian Pension Fund return 16.5% last year, exceeding its benchmark by several percentage points.
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“Within alternatives, the bond portfolio generated very strong returns of 28%, while the timber assets returned 25% and listed infrastructure returned 23%,” it said.

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At the end of March, Lothian was slightly overweight equities, accounting for 69.1% of assets, with a further 6.1% in index-linked assets and 21% in alternatives. It has returned 8.9% per annum over the last decade, 1.3 percentage points above benchmark.


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Risk management is biggest concern for institutional investors — survey

Risk management is biggest concern for institutional investors — survey | Timberland Investment | Scoop.it

Increased complexity in risk management is the biggest concern for institutional investors across the globe, a new survey shows.


Commissioned by BNP Paribas Securities Services and conducted by polling firm YouGov, the survey found the idea that risk management will become more complex is the biggest concern for 23% of respondents.

The survey spoke to 177 asset owners representing $6 trillion in total assets. A further 14% said the biggest concern was hiring and retaining talent; and 11% each said the ability to efficiently manage costs and the ability to efficiently use capital were the biggest concerns.
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Respondents were made up of 34% from insurance companies; 33% from pension funds; 14% from official institutions including central banks, supranational agencies and sovereign wealth funds; and the rest from corporations. Geographically, 41% of respondents were from Europe, the Middle East and Africa; 32% from the Asia-Pacific region; 16% from North America; and the rest from South America.

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Direct Investing with a Twist

Direct Investing with a Twist | Timberland Investment | Scoop.it

The institutional investment community has been captivated by “disintermediation” for the past five years. This is understandable, as insourcing does (we now know) improve investment performance. But while direct investing remains a hot topic among the Giants, there’s something new reverberating in the industry. The buzzword of the moment is now “platforms.” Everywhere I go, I seem to hear CIOs talking about launching platforms for infrastructure, real estate, agriculture, and a variety of other private (though normally real) assets.
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The direct investment trend began in the late 1990s with Canadian pensions, but the widespread appeal really only began after the global financial crisis (“GFC”). The GFC appeared to illustrate, in rather stark terms, that much of the asset management industry was not operating in the interest of their clients. So much so that some asset owners asked, “Hey, can’t we do at least some of this ourselves, for a fraction of the cost, and get better outcomes?”
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It’s in this context that I think platforms have become increasingly popular, as they offer a hybrid approach to insourcing and outsourcing — one that allows for many of the in-sourcing benefits without subjecting internal organizations to the high burdens of end-to-end in-house asset management.
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To the Giants, platforms generally refer to independent companies operating in attractive investment niches. They are particularly common in emerging markets, and in acquiring and maintaining real assets, such as ports, dams, airports, timberland, energy, toll roads, and sometimes even specialized industrial companies, among other things. The idea here is for a financial partner — the Giant — to take a meaningful position (ideally a control position) in a company and then use that company to make follow-on investments or acquisitions in other assets within a certain niche. The Giant provides capital to help roll up a variety of operating and development assets, while the company sources, screens, and invests in the assets while simultaneously managing them. The best platforms are those in which the Giant has an existing and trust-based corporate relationship and knows a team possesses appropriate expertise and experience. After solidifying this relationship, the idea is then to scale it, injecting additional capital in the platform and asking the team to seek out more assets.
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From the perspective of these investors, platforms offer a cheaper and more aligned access point to attractive assets. This is particularly true for long-duration investments, where the exit is not easily anticipated at the time of the deal closing. It also offers the investor valuable governance rights, as the Giant is often a big player in the company (rather than a small shareholder in a fund). This may include a right of first refusal on all deals, or oversight of internal budgets and compensation.
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Clearly, a platform is not simply a replacement to a fund manager that lets you allocate and close your eyes. You really do have to engage in the sector to identify the companies that could be platforms. Moreover, you have to be engaged in the companies themselves to make them work. So, ironically, adopting this hybrid approach to direct and external investing actually demands quite a lot of internal investment expertise. At the same time, platforms help to extend the reach of internal investment teams, bolstering capabilities in ways that no pension fund could have internally otherwise.

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USA Foundation heavy to timber

USA Foundation heavy to timber | Timberland Investment | Scoop.it

The University of South Alabama Foundation approved $2 million in contributions to the university during its June 5 meeting. The money goes to scholarships, professorships and university programs.
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The foundation's total net assets are at $319.5 million as of March 31, up from $317 million on Dec. 31, 2013, and up from $291 million in the first quarter of 2013 – an increase of 9.7 percent over the past year.


Foundation Director Maxey Roberts gave the board members an update on the foundation's timber properties. The foundation owns 77,879 acres, appraised at $156.2 million, or $2,006 per acre. The appraised value on Dec. 1, 2013, was $155.2 million, and the university's consultants believe that timber prices will rise this year in the clear-cutting and thinning programs, she said.


The foundation will hold three timber sales in 2014, Roberts said. The first sale, on April 10, brought in $747,436 in sales, about $1,664 per acre, with 10 bidders taking part. The timber properties also bring in money from hunting leases; revenue for the 2014 hunt leases was $465,826 and the revenue from clear cuts and timber thinning is $2.9 million for the past 10 months, through April 30.


The timber properties represent about 48 percent of the foundation's net assets.

Sam Radcliffe's insight:

There is probably not any other institutional portfolio so heavily weighted to timber. The article notes that the timberland investment has yielded $136 million since 1997, an average of $8 million per year.

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Manager search study shows global shift towards non-traditional mandates

Manager search study shows global shift towards non-traditional mandates | Timberland Investment | Scoop.it

Manager searches and asset volumes around the world grew last year, and the pattern of activity reflected a shift towards non-traditional mandates, according to a study by Mercer.
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The survey, based on activity reported through Mercer’s client base internationally, revealed the number of searches had grown between 2012 and 2013 in the UK, the rest of Europe and Asia, but had decreased in Australasia and North America.


However, across these regions as a whole, the value of assets placed increased markedly, it said.


Altogether, the consultancy undertook 760 searches last year globally, down from 776 in 2012.
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These searches were mainly in the UK and the US, but also seen in several other regions, it said.


In the UK, the number of manager searches rose by 5% last year, and assets placed climbed to $22bn (€16bn) from $17.8bn, according to the survey.
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Search activity rose in the rest of Europe, driven primarily by a big hike in both search numbers and assets placed in Germany.


Infrastructure and timber were the most popular search categories in the region, it said.
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The most popular search category in the US last year was emerging market equities, although Mercer said US fixed income had had the largest share of assets placed.

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European institutional investors set to increase direct ownership of real assets

European institutional investors set to increase direct ownership of real assets | Timberland Investment | Scoop.it

A new study commissioned by Aquila Capital reveals that institutional investors are set to increase their direct ownership of real assets as their current exposure lags their preferred level by 14%.

The research also showed that more than half (57%) of institutional investors in Europe believe direct ownership is the best way to exploit opportunities in real assets - yet currently this approach is adopted by 43%.

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According to the research, property was the most popular asset, with 74% of investors having exposure to it, followed by infrastructure (37%); commodities (26%); renewable energy (21%); timber (18%); shipping (7.9%) and farmland (2.6%).


The study shows that the most significant deterrent to investing in real assets is the lack of liquidity, which was cited by 55% of respondents. Other reasons cited include institutions' lack of understanding of real assets (33%); limited long-term performance history (30%); a lack of suitable investment products (25%); fear of poor returns (23%) and unwillingness to diversify into ‘untested' investment sectors (20%).

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Blue ribbon panel recommends better valuation and reporting standards for public pension funds

Blue ribbon panel recommends better valuation and reporting standards for public pension funds | Timberland Investment | Scoop.it

The Society of Actuaries issued a report this week recommending a number of controversial changes in the way that public pension funds value their assets and liabilities and disclose their financial health.

The report, authored by an independent "blue ribbon" panel of experts, weighs into an ongoing debate over the financial reporting and resulting funding practices of public pensions. Politics, rather than economics, often drive that debate, though there is a broad consensus among financial experts that public pension systems – including, in some respects, Oregon's - systematically mis-measure their assets and liabilities. That's politically convenient, as it lowers annual pension obligations, but it results in chronic underfunding and encourages riskier investments, experts say.


The core of the accounting debate addressed in the report is the interest rate, or discount rate, that public funds use to calculate the cost of future benefits in today's dollars. Public pension funds use their assumed earnings rate on investments, and if they invest in a basket of risky assets, as Oregon does, they can assume they'll earn 7.5 to 8 percent annually. That high rate reduces the current value of those future benefits, allowing government employers to set aside less money today to meet them.


But that return is hardly guaranteed, and many experts argue for the use of a so-called risk-free rate, comparable to the yield on U.S. Treasuries. The impact would be huge, adding as much as $2 trillion to the liabilities public pension funds around the country, according to some studies.


The panel's report took a middle ground, suggesting that public pensions calculate and disclose their overall liabilities and annual costs using both rates. The difference between the two is a good measure of system risk, as it represents the additional liabilities and contributions governments would have to pay if they weren't taking investment risks.


For purposes of setting actual contribution rates, the panel made another middle-ground recommendation, suggesting the use of a forward-looking rate that recognizes both the potential for higher investment returns and the risk those investments entail. That number is currently about 6.4 percent.

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Institutions poised to increase real estate and real asset allocations, says survey

Institutions poised to increase real estate and real asset allocations, says survey | Timberland Investment | Scoop.it

Major institutional investors are poised to increase their allocations to alternative investments, with a bias towards real estate and real assets, during 2014, according to a survey by BlackRock.


Approximately half of institutions surveyed – 49 per cent – expect to increase their real estate allocation and over 40 per cent indicated they will increase their investment in real assets this year.
 
At the same time, about one-third of the institutional investors surveyed intend to reduce their cash holdings in 2014.
 
“Institutional investors are seeking to build portfolios better suited for an investment landscape characterised by low yields, sluggish growth, volatile markets, and rising correlation between stocks and bonds,” says Robert Goldstein, senior managing director and head of BlackRock’s institutional client business and BlackRock Solutions. “Divergent economic and geopolitical conditions globally offer institutions a menu of real estate and real asset opportunities that meet a variety of investment objectives.
 
“In real estate, while core, income producing investments in developed markets are still in favour because of their liquidity and safe cash flows, we anticipate that institutions looking for income-producing alternatives will turn their attention to more opportunistic real estate investments outside their home markets.

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Steve Croy's curator insight, November 2, 2014 9:16 AM

This trend should carry over into the first two quarters of 2015.If you have small,medium or large portfolios of incoming producing properties you would like to sale let me introduce to my buyers and see if we can put an exit strategy that's a win/win for all parties.

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USA Foundation's timber-laden assets at $305 million; investments expected to do well in 2014

USA Foundation's timber-laden assets at $305 million; investments expected to do well in 2014 | Timberland Investment | Scoop.it

The University of South Alabama Foundation’s net assets have risen to $305 million, board members learned in their meeting Wednesday.


That’s up from $298.5 million at the end of June, and up from $283.7 million in fiscal year 2012, according to reports from foundation officials.


The foundation’s equity portfolios were at a market value of $123.4 million as of Nov. 30, and its timber properties were appraised at $152.5 million.


Maxey Roberts, director of the foundation, said that the timber properties continue to provide a reliable cash flow, and are projected to bring in at least $2.65 million each year in the next five years.

Sam Radcliffe's insight:

http://blog.al.com/live/2013/12/by_the_numbers_fast_financial.html shows:


Overerall value: $153.3 million


How it is managed: The 77,879 acres of timberland in Alabama and Mississippi generate revenue for the foundation from clear-cut timber sales, thinning, and hunting leases.


What it cost: $132.2 million


What it has earned since the initial investment: $135.1 million


In fiscal year 2013, total revenue from timber through June 2013 is more than $3.2 million. The breakdown:

  • Revenue from clear-cut timber sales on 1,678 acres: $2.4 million
  • Revenue from thinning: $294,478
  • Revenue from hunting leases: $455,214


Current value of the timber investment: $152.5 million

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PPF appoints new farmland and timberland managers

PPF appoints new farmland and timberland managers | Timberland Investment | Scoop.it

The Pension Protection Fund (PPF) has appointed seven fund managers as part of its development of its alternative investment portfolio.


The managers will invest in farmland and timberland. The PPF has made this decision so that it can benefit from greater diversification and reduce its overall risk.


The seven appointed fund managers are: Brookfield Investment Management, Dasos Capital Oy, GMO Renewable Resources, Hancock Timber Resource Group, Macquarie, New Forests Pty and Stafford Timberland Group.

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Time to Ditch the Yale Endowment Model 

Time to Ditch the Yale Endowment Model  | Timberland Investment | Scoop.it

Institutional investors are different from you and me -- they have a lot more money. Pension plans in rich countries manage almost $30 trillion in assets, for example. This opens doors at the offices of hedge funds, private-equity firms and other expensive money managers and creates opportunities to directly invest in projects inaccessible to regular people, such as dams, natural-gas fields and real-estate developments. 

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One implication of Swensen’s ideas is that institutional investors should concentrate their portfolios in assets that aren’t traded on public markets. As of June 2012, about two-thirds of Yale’s endowment was invested in gas fields, timber forests, real estate and private equity. These illiquid assets are difficult to sell on short notice without offering steep discounts. Investors are supposed to get compensated for taking this risk with higher returns. That’s attractive to institutions because, in theory, they don’t need to worry about accessing their money at short notice.


In practice, institutional time horizons are often shorter than one might expect. Endowment disbursements are the single biggest source of revenue at rich schools like Yale, Harvard and Stanford, which were among the first to adopt this strategy. Pension plans exist to pay income to beneficiaries on a regular schedule. These obligations should be offset by liquid assets that provide stable cash flows. Instead, many institutional investors pretend that they can endure large swings in the value of their illiquid holdings.


This self-deception works well as long as asset values keep rising. It’s easy enough to persuade bankers to accept a timber forest in Eastern Europe as collateral for a loan when they are confident that they can always sell it to someone else at a higher price. This allows institutions to transform illiquid assets into cash without having to go to the trouble of trying to sell them to someone.

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The potential for a mismatch between assets and liabilities is one big problem with the Yale model. Another is the focus on hunting for the best hedge funds, private-equity managers and stock pickers. This is where most of the money is made (and lost) in the endowment business. According to the Yale endowment’s most recent report, “nearly 80 percent of Yale’s outperformance relative to the average Cambridge Associates endowment was attributable to the value added by Yale’s active managers, while only 20 percent was the result of Yale’s asset allocation.” That’s great for Yale, but it’s impossible for every institution to have the best managers.

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MassPRIM opens the door to JV and international timber investments

MassPRIM opens the door to JV and international timber investments | Timberland Investment | Scoop.it

Massachusetts Pension Reserves Investment Management Board on Thursday approved adding non-core holdings and international developed markets investments to its 10% real estate allocation.


Also, the board, which oversees $53.2 billion, will allow joint venture investments in timber and allow timber managers to invest internationally, up to a 10% limit, according to meeting documents. The board has a 4% allocation to timber and natural resources combined.


The changes were recommended by real estate investment consultant Townsend Group, which “believes the changes will allow PRIM's managers the ability to better execute in the current real estate and timber markets along the risk/return spectrum and continue investing in the future in a manner that allows for increased flexibility and execution,” according to the documents.

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AP2 looks toward the bioeconomy century

AP2 looks toward the bioeconomy century | Timberland Investment | Scoop.it

AP2, the SEK300 billion Swedish buffer fund, is attracted to the diversification benefits and long-term nature of timber investments. In a bid to expand its relationship with the asset class it is looking at ways for its capital to be permanently invested rather than act as seed capital.


Anders Stromblad, head of external managers at AP2, says the fund was attracted to timber investments, motivated by the growth characteristics and diversification effects it has on the total portfolio. “We wanted diverse alpha,” he says. “The risk return profile of timber is attractive with low correlation with other assets. It has the long-term return expectations of equity but with more diversification and less leverage.”


Stromblad’s view is that timber is a good fit for long-term investors like AP2, which has assets of around SEK300 billion ($35 billion), is a patient investor, with a long investment horizon. “We can live with a significant portion of the portfolio being illiquid and take advantage of that, so we are happy to take that illiquidity risk,” he says.


In addition the long-term nature of the way the fund invests means the portfolio can be built slowly, and it takes a long time to build a portfolio of timber investments.
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AP2 has invested in forest since 2010, and has around 0.3 percent of total capital invested in forest assets. The fund’s timberland holdings are in seven countries – with the US (52 per cent) and Australia (40 per cent) dominating. It is roughly split three ways between hardwood/eucalyptus, other hardwood and conifers.


It employs three managers – New Forests, Molpus and Global Timber Resources, which is a company that AP2 jointly owns with TIAA-CREF and other institutional investors including the Greater Manchester Pension Fund.
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Within its forestry portfolio, it makes it a condition that fund managers certify forest real estate in compliance with one of the international sustainability certification systems, Forest Stewardship Council (FSC) or the Programme for Endorsement of Forest Certification (PEFC). If the forest assets cannot be certified – as in the case of biomass plantations not covered by FSC or PEFC certification – they will be managed in compliance with the certification principles implemented by these organisations.
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AP2 has a positive outlook towards its timber investments, and is looking to expand the relationship and the way it invests. “We want to look at ways we can be permanent capital rather than funding capital for these investments. Instead of selling off be permanent long-term owners to these assets rather than flip between managers,” he says.

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New Breed of Endowment Managers Beats Harvard at Its Own Game

New Breed of Endowment Managers Beats Harvard at Its Own Game | Timberland Investment | Scoop.it

The Ivy League is losing its historic lead on one of education’s most important playing fields: endowment investing.


In the heart of the Iowa prairie, tiny Grinnell College last year beat all its Eastern rivals, with a 20.4 percent return, according to an exclusive Bloomberg ranking of endowment performance. It tied for No. 1 with another heartland institution, the University of Minnesota, a public system better known for its top-ranked Golden Gophers men’s hockey team.
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Harvard, the oldest U.S. college, the world’s richest and long considered among the savviest investors, ranked No. 65. Over a decade, Bowdoin College in Maine is starting to challenge Yale University, long the name to beat.


Those are some of the findings of the Bloomberg ranking of the wealthiest U.S. colleges’ investment performance. Yale and Harvard pioneered a high-risk strategy of boosting returns with long-term bets on exotic investments, such as private equity, commodities and timber. That approach has become commonplace; others now challenge and, in some cases, surpass the leaders.

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World's largest sovereign wealth fund takes stand against deforestation

World's largest sovereign wealth fund takes stand against deforestation | Timberland Investment | Scoop.it
Norway's Government Pension Fund Global — the world's largest sovereign wealth fund — is adopting standards to avoid investing in companies linked to tropical deforestation, sending a strong signal that forest destruction is not an acceptable...
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Church of England boosts forestry stake

Church of England boosts forestry stake | Timberland Investment | Scoop.it
The Church Commissioners have acquired a forestry portfolio for £49m (€61m) for their £6.1bn endowment fund, used to finance the Church of England’s activities, as well as some of its pension obligations.

The estates were purchased from UPM Tilhill, a forestry and timber harvesting company, and are made up of 13 forests in Scotland and two in Wales, including two operating wind farms and a mountain biking visitor centre.

They take the Commissioners’ total UK forestry holdings to £100m, all of which are certified to Forest Stewardship Council (FSC) standards. The Commissioners are now the largest private commercial forestry investor in the UK.

The Commissioners have targeted forestry investments since 2010, and since inception these have delivered an annualised double digit return.
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Infrastructure, buyouts see big jumps

Infrastructure, buyouts see big jumps | Timberland Investment | Scoop.it

Infrastructure was one of the fastest growing non-credit alternative investment asset classes, up nearly 72% to $10.8 billion in the 12 months ended Dec. 31, according to Pensions & Investments' annual survey of managers of U.S. institutional, tax-exempt assets.
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Real estate equity also increased, by 3.4% to $293.99 billion for the year ended Dec. 31.


The 25 largest managers of equity real estate account for 86% of the total real estate equity assets reported in 2013, compared with 84% of all real estate equity assets the year before.
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Meanwhile, the 25 largest real estate equity managers are finding success with timber. Overall, timber assets dropped 6% to $15.5 billion in 2013. But timber assets managed by the top 25 grew by 4% to $4.7 billion during the same time period.


By comparison, the NCREIF Property index rolling four-quarter total return was 10.98%, divided between 5.61% of income and appreciation of 5.16%. The NCREIF Timberland index rolling four-quarter return was 9.69%. The income portion was 2.8% and appreciation was 6.75%.
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P&I's data on the individual asset classes and strategies are based on assets managed internally for U.S. institutional tax-exempt investors as of Dec. 31.

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Mass PRIM looks to property joint ventures

Mass PRIM looks to property joint ventures | Timberland Investment | Scoop.it

Massachusetts Pension Reserves Investment Management Board is considering direct real estate joint ventures for the first time.

In a board meeting document, Mass PRIM said direct joint ventures are being considered as a future strategy. The pension plan would focus on unleveraged investments in the US with strong operating partners.

Sam Radcliffe's insight:

This article is slanted toward commercial real estate but Mass PRIM is one of the largest institutional investors in timberland. A timber JV could make a lot of sense.

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Cornell President suggests carbon set-aside for portion of timber portfolio

Cornell President suggests carbon set-aside for portion of timber portfolio | Timberland Investment | Scoop.it

The following is a response to the Faculty Senate resolution on Cornell investment and divestment strategies for a sustainable future from President David Skorton on Feb. 11:


The Faculty Senate Resolution on Cornell Investment and Divestment Strategies for a Sustainable Future, passed in December 2013, as well as the Student Assembly Resolution 32, “Toward a Responsible Endowment” to which I responded last spring, have generated considerable discussion on our campus and a broad spectrum of opinion on the issues raised. In this response to the Faculty Senate’s resolution, I offer some general comments on the role of the university in environmental sustainability, address the specifics of the Faculty Senate’s resolution, and offer a way forward.
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In addition, we are currently in discussion with our timber portfolio manager about a possible transition for a portion of the acreage in our portfolio from a managed forest to a managed forest that would be set aside as a permanent natural habitat. Upwards of 200,000 acres could be set aside in this way, contributing to the carbon sequestration aspect of our timber investments.

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Mass PRIM reports on FY 2013 timber results

Sam Radcliffe's insight:

Skip to p. 91 for the timber detail. Mass PRIM has $1.4 billion in timber, a little more than its 2% portfolio allocation. That is roughly equal to Potlatch's market capitalization.

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Tallahassee Pension Plan adds private equity, timber and increases real estate

Tallahassee Pension Plan adds private equity, timber and increases real estate | Timberland Investment | Scoop.it

Tallahassee (Fla.) Pension Plan is adding new target allocations to private equity and timber, and increasing its target to real estate, said Kent Olson, the city’s deputy treasurer-clerk.


The changes follow an asset allocation study by Segal Rogerscasey, the $1.3 billion pension fund’s investment consultant. The new allocation was approved by the city’s sinking fund commission, which oversees the pension fund, at its meeting Wednesday.


The new allocation creates targets of 5% each to private equity and timber, and increases the target to real estate to 15% from 10%, Mr. Olson said. Staff and Segal Rogerscasey have begun interviews with some private equity and real estate managers in anticipation of the new allocation. Additional invitation-only searches for real estate and timber are likely to occur in the first six months of 2014, he added.

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Pension Funds As Outside Managers: Sheep Dogs or Wolves?

Pension Funds As Outside Managers: Sheep Dogs or Wolves? | Timberland Investment | Scoop.it

A growing number of pension funds are leveraging their own direct investment skills to become financial intermediaries in their own right. Is this good news? 

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For example, pensions are trying to bypass financial intermediaries by developing in-house teams of investment professionals. Other funds are trying to seed new and aligned managers that provide cost-effective access points to alternative assets. And other funds are taking it even further, leveraging their own direct investment skills to become financial intermediaries in their own right.

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That’s right, the pension funds that worked so hard to dis-intermediate third party asset managers are themselves becoming third party asset managers.


Before we get into assessing whether this is a good thing, let's first see who's doing it. Here’s a list of the ones I can think of off the top of my head:

  • TIAA-CREF: The Teachers Insurance and Annuity Association – College Retirement Equities Fund 
  • QIC: The Queensland Investment Corporation
  • CHIMCO: The Catholic Healthcare Investment Management Company 
  • VRS: The Virginia Retirement System 


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Here’s something I wrote a few years ago on this topic that I think explains it rather well:

"Certain institutional investors have spent the time, money and resources to build the investment equivalent of a sports car. Remarkably, this sports car can compete with the private sector’s sports car and, perhaps, even beat the private sector in certain illiquid and long-term assets, such as infrastructure, timberland, real estate, agriculture and some private equity investments. However, after building this sports car – which was really expensive by the way – the public investors have come to realize that they may not have enough gas to keep it running (or at least running efficiently). So these investors have decided to go out and find other investors (with plenty of gas money) who might like to ride in their sports car with them. As such, the investors with the sports cars take on a few additional passengers to make sure there’s enough gas in the tank. That’s the idea, and everybody is happy driving along in the sports car."

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Pensions guardian favours alts over equities, branches into timber

Pensions guardian favours alts over equities, branches into timber | Timberland Investment | Scoop.it

Overstretched finances are an all too familiar issue for Alan Goodman, fund management principal at the Pension Protection Fund (PPF), which absorbs the assets of insolvent company pension funds and covers their liabilities to members.


It’s therefore no surprise that Goodman says the PPF adopts a low-risk strategy but that doesn’t mean it’s averse to taking some well-balanced risks. The fund’s current exposure to alternatives stands at 20%, double that of its allocation to equities at only 10%.

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Since the PPF was established in 2004 its assets have grown significantly, says Goodman, which in turn has widened its focus towards alternative investment.


‘We started with real estate, then added private equity, infrastructure, global tactical asset allocation and alternative credit strategies. Alternative credit funds were added a couple of years ago, such as distressed debt, mezzanine and senior loans.


‘The most recent strategy we’ve tapped into is farming and timber.’

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The search this specialised investment started in 2012 and the group has recently backed its first timber fund manager.


‘The market provides a number of characteristics in terms of stability,’ he says. ‘The logged timber prices can be volatile but the overall growth rate can really come through, especially if you get geographical diversity via the different rainfall patterns around the world.


‘Demand is high for timber products. Australia and New Zealand have strong export markets to the growing middle classes of Asia where less timber is traditionally grown.’


Goodman and his team have focused their first timber investment on this market through a fund which is able to invest in a variety of regions.

At present they have shortlisted seven managers to target timber and farmland investments, which include groups such as Brookfield Asset Management, GMO Renewable Resources and Hancock Timber Resource Group.

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However, one risk which Goodman highlights is linked to the sector’s nascent status.


‘One of the outstanding issues is how you exit this type of investment? Who is the next natural buyer? It will be interesting see how this pans out over the next 10-15 yeas,’ he says.

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Global farmland offers potential for asset deals

Global farmland offers potential for asset deals | Timberland Investment | Scoop.it

As the world’s population swells beyond seven billion and emerging markets’ appetite for food grows, Canadian institutions are getting increasingly hungry for agribusiness and farmland acquisitions abroad.

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Canadian institutions, tired of the lacklustre returns in the market, are seeking options with better yields than gold and government bonds, such as agriculture, experts say.

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This year, Canada Pension Plan Investment Board launched its agriculture investment program, and made its first direct farmland investment in a portfolio of U.S. farmland.

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CPP’s initial focus will be the U.S., Canada, Australia and New Zealand, it added.


Meanwhile, the Ontario Teachers’ Pension Fund at the beginning of this year created a “natural resources” investment asset class. Teachers says it will look for “new opportunities in oil and gas and agriculture.”

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Last year, Caisse de dépôt et placement du Québec and British Columbia Investment Management Corp. joined with U.S. financial services company TIAA-CREF to create a global agriculture investment vehicle, with $2-billion earmarked to buy farmland in the U.S., Australia and Brazil. In 2011, Alberta Investment Management Corp (AIMCo), joined a forestry management firm in a $415-million acquisition of Australian timberlands — options for which chief executive Leo de Bever said included reverting it to agriculture.


Farmland, with its steadily rising prices, is a tantalizing investment option – and one that provides interim income by leasing it to agricultural operations, says Mr. Barnes.

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Farmland values across the globe between 2002 and 2010 have risen up to 1,800%, according to the Global Farmland Index compiled by U.K.-based real estate firm Savil.

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But the fact that prices have escalated so rapidly is a problem for potential investors, says AIMCo’s Mr. de Bever. He wonders whether the investment potential for farmland has run its course.


He explains that the rationale for investing in land is that, with rising demand for protein in the Far East, existing landstock will become more valuable. Yet he points out that land values operate on a long cycle, and that the recent run up in value has been compressed into a short timeframe. “It’s not clear to me that any increase in farm prices is going to be rewarded with an appropriate return.”


Still, Mr. de Bever says AIMCO, and other investors, will keep an eye out for farmland acquisitions — albeit a cautious one. “My guess is that there is still going to be quite a bit of demand. My concern is that I would be very picky and make sure that you’re buying right.”

Sam Radcliffe's insight:

A lot of parallels between this demand for farmland and the demand for timberland, and a lot of the same players. It will be interesting to see if the structural changes in farmland investment (e.g. TIAA) get adopted for timberland.

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Jack D Bridges's curator insight, September 30, 2013 11:24 AM

Great find from Mr. Sam Radcliffe, of Prentiss & Carlisle (http://www.prentissandcarlisle.com/).

 

If Mr. Radcliffe is right, and the same trend follows apace for global timberland markets--look out. I can think of a few established firms who will gladly sell to the many new buyers who will be forced to chase prices higher still....so much for efficient markets, huh? 

josh dekoning's curator insight, October 3, 2013 1:15 PM

The people of Canada are starting to buy up more farmland becuase the value is increasing and they can see the amount of potential money they can make.    With more land available we will be able to provide food for the 7 billion people on the world.  Hopefully the price will not continue to grow otherwise people will not be able to afford to buy it because they won't be able to make their money back and will lose money.