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The Financial Times reports that CalPERS lost over $400 million on Lincoln Timber, a failed 2008 purchase of $2.38 billion of timberland in the southern part of the US. CalPERS exited the remainder of this investment in June, for $1.39 billion, a loss of $355 million on the purchase price. Combined with losses on disposals of previous portions of this holding, the total loss was over $500 million.
Combined with previous disposals, it appears that total sales of the forestry land netted $1.85bn, leaving Calpers and its partners with a $534m loss before taking into account lumber revenues, inflation, management fees and debt servicing costs.
The article later states that the giant fund paid $52 million in fees. And of course, there were opportunity costs. Again from the pink paper:
According to Calpers documents, its return on the investment was a negative 0.5 per cent over 10 years, underperforming its benchmark, the NCREIF Timberland Index, by 497 basis points over that time.
“Leverage has exacerbated cash flow issues,” said a Calpers external audit last year. “Assets that would otherwise have been allowed to grow and appreciate, have been harvested to manage the debt.”
It also appears that CalPERS, as it is sometimes wont to do, timed its sale badly. The Financial Times points out CalPERS was in haste to exit its holdings:
After starting 2018 with the seventh-largest holdings of forestry land on the continent, the Texas sale all but takes Calpers out of the asset class.
“They made a decision to get out and they wanted to get out fast,” said Brooks Mendell of Forisk Consulting. “They’ve basically accomplished that objective.
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In the 1990s, CalPERS had been an early entrant into timberland investing, along with Harvard, and had done well with this investment strategy. JJ Jelincic said the Lincoln investment was intended to be the first of a new program, but that a timber portfolio with holdings only in the South, and nothing in the Pacific Northwest, “made no sense”.
