Timberland Investment

The 100 largest natural resources institutional investors had combined investments of $115 billion in the asset class as of July 3, according to Preqin's first Natural Resources Top 100 report.

Those investors have a mean allocation of 7.4% to the asset class as of July 3, compared with an average of 4.4% for all investors. Some 94% of the 100 largest investors have energy investments as part of their natural resources portfolio, 52% have timber, 50% have agriculture and 46% have mining fund investments.

The largest institutional investor on Preqin's list is Toronto-based insurance company Manulife Financial with $7.2 billion of its $328.2 billion investment portfolio in natural resources, followed by the $11.1 billion Department for International Development, London, and the $40.3 billion University of Texas Investment Management Co, Austin.

Timber investment company Phaunos Timber Fund Ltd said on Monday its manager, Stafford Capital Partners, has resigned.

The resignation will take place with effect from August, with a six month notice period commencing from that date.

During the notice period, Phaunos Timber said Stafford will focus on the ongoing management of the company's assets, the appointment of a sales agent to manage the realisation of assets, and the provision of fund information as part of the handover to a new manager.

This comes after shareholders voted in June against continuing Phaunos Timber's operations. On July 3, the company said it would propose to shareholders changing the composition of the board to reflect the needs of the company as it begins to wind down.

ASGA Pensionskasse, a CHF13.5bn (€12.4bn) Swiss pension fund, has awarded Stafford Capital Partners a mandate to invest $100m (€89.1m) in timberland and agriculture.

The mandate includes a commitment to Stafford’s latest timberland fund, co-investments in timber and a separate account for agriculture investments.

Stafford International Timberland Fund VIII, which invests in timber through the secondary market and co-investments, raised $262m in commitments in April.

Angus Whiteley, Stafford’s group CEO, said: “Our strategy of accessing the markets through secondary acquisitions, co-investments alongside the best managers and new fund investments is well established in the timberland markets.

“We are using this same approach in the agriculture markets, where we see great opportunities to access another category of non-correlated, income generating investments.”

Alternative investment funds raised a total of $602 billion in 1,228 funds last year, down in capital terms from $637 billion raised by 1,486 funds in 2015, according to a new report by alternative investment research firm Preqin.

Among the alternative investment asset classes, 807 private equity funds closed on a total of $345 billion in 2016, up from $328 billion by 944 private equity funds in 2015.

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Infrastructure managers raised a record amount of capital in 2016, with 51 funds closing on $58 billion, up from 70 funds that raised $40 billion in 2015.

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Natural resource funds did not fare as well. Some 70 natural resources funds raised $58 billion in 2016, down from 91 funds with a total of $74 billion in 2015. The top 10 natural resources funds raised a combined $38 billion and they were all focused on energy.

Real estate and private debt fundraising also faltered. Real estate managers closed on 214 funds with a combined $104 billion in 2016, down from a total of $123 billion by 274 funds in 2015. 

Stafford Capital Partners’ latest timberland fund has exceeded its fundraising target by 22% at the final close.

Stafford International Timberland VIII Fund (SIT VIII) raised $612.5m (€698.8m) from investors in the UK, Europe and the US. The final close exceeded the target fund size of $500m.

IPE Real Assets reported last year that Swiss pension fund ASGA Pensionskasse awarded Stafford a mandate to invest $100m in timberland and agriculture. The mandate includes a commitment to Stafford’s latest timberland fund, co-investments in timber and a separate account for agriculture investments.

SIT VIII has already made three secondary investments and one co-investment, all with leading timberland managers, committing close to 21% of the fund, the investment manager said.

Stafford said SIT VIII is a continuation of the firm’s specialist timberland funds with a focus on acquiring secondary positions in existing timberland funds and accessing timberland co-investments.

Managers in a number of real asset sectors — with the possible exception of infrastructure — are having a tough time raising capital. And that is only the leading edge of the storm buffeting them.

Some timber funds are nearing the end of their lives with managers expected to bifurcate into the haves and have-nots when they go out to raise new funds;
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Also hurting fundraising is that, at least in the U.S., few investors are expecting either inflation or deflation, which is one of the reasons many investors invest in real assets.
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Harvard Management Co., which manages Harvard University's $37.6 billion endowment, is reviewing the investment strategy for its $2 billion natural resources portfolio, sources said.
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Officials at the $323.6 billion California Public Employees' Retirement System, Sacramento, are in the process of re-examining the role of forestland in its portfolio and restructuring its domestic forestland portfolio.

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CalPERS officials are considering the sale of its Crown Pine Timber portfolio, sources said. CalPERS had committed $1.25 billion to the Crown Pine Timber/Campbell Opportunity Fund-A in October 2008 to invest in 1.5 million acres in eastern Texas and western Louisiana.
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Whether a manager makes money on a timber investment often depends on how much the manager paid, Eaton Partners' Mr. Martenson said, more so than in some other asset classes. "In timber, if you didn't buy cheap or smart, performance comes out because trees grow only so fast," Mr. Martenson explained. There is not much a manager can do to enhance a timber investment and so the purchase price is even more important in timber than in most other investments, he said. "There will be a group of five TMOs (timber management organizations) that will be rewarded because of their performance. The others will have to figure it out" by finding an acquirer or an investment partner.

Bob Ratliffe, Seattle-based president of hedge fund, private credit and real asset manager Silver Creek Capital Management said this is "an historic" time for the timber industry, involving a confluence of factors, which could result in a number of timber assets coming to market. "Timber funds ... are coming to the end of their lives," he said. The people who started timber management companies also are getting to the end of their careers, Mr. Ratliffe said. And the timber markets have not recovered as anticipated.
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Silver Creek has $6.3 billion in assets under management, with approximately $1 billion in timber assets and about $400 million in dry powder, Mr. Ratliffe said.
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"I think timber is a great asset class when priced at the right level," said Barry Blattman, vice chairman and a senior managing partner at real asset manager Brookfield Asset Management, New York. "We've struggled to find opportunities that meet that goal," he added.
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A few managers are offering open-end timber funds that are longer term and more liquid than the traditional 10-year closed-end funds. The $22.1 billion New Mexico State Investment Council, Santa Fe and the $16 billion Kansas Public Employees Retirement System, Topeka, have committed capital to RMS Evergreen U.S. Forestland Fund, an open-end timber fund is managed by Resource Management Service LLC.

New Forests, on behalf of its Tropical Asia Forest Fund (TAFF), has completed the acquisition of a majority shareholding in one of the largest hardwood plantation estates in Laos. TAFF’s portfolio now comprises investments with diversified timber species and market exposures across plantation companies in Malaysia, Indonesia, and Laos. TAFF includes capital commitments from nine investors and is the only institutional forestry fund dedicated to investing in sustainably managed timber plantations in Southeast Asia.

TAFF’s latest acquisition is an 85% interest in a mature plantation estate that will be known as Mekong Timber Plantations. New Forests intends to develop the plantation as a high-quality timber asset serving regional markets for certified plantation hardwood. The purchase further supports TAFF’s investment thesis of acquiring significant interests in plantation timber companies and investing to transition these assets toward higher value end markets and to service the growing demand for certified, sustainable timber in Asian markets. The fund’s investments include eucalyptus and acacia plantations as well as a rubber plantation that will produce both latex and timber products.

Mekong Timber Plantations will manage 22,000 hectares of leased area mainly in Bolikhamxay and Khammouane provinces of Laos. TAFF also has equity interests in Acacia Forest Industries Sdn Bhd of Sabah, Malaysia and PT Hutan Ketapang Industri of West Kalimantan, Indonesia. In total, the fund has invested in more than 150,000 hectares of concessions, leases, and gazetted land, currently including around 45,000 net planted hectares.

Kansas Public Employees Retirement System has approved a $75m (€70.2m) commitment to the RMS Evergreen US Forestland Fund. The commitment allows the pension fund to be a limited partner in one of few open-ended funds that invest in US timberland.

The fund holds a partial interest in a 2.1 million acre timberland portfolio worth $3.9bn in the southern region of the US.
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The targeted long-term net returns for the fund are in the high single digits. The fund will accumulate most of its annual revenue and total return from active timber sales to local and regional sawmills and pulp mills.

This is expected to be driven by a recovering US housing market and growing demand for pulpwood used in packaging and wood-pellet production.

The fund plans to continue to acquire more timberland assets beyond its existing portfolio. Assets will be in the southern region of the US and the portfolio will be diversified by age-class, species and regional submarkets.

The commitment by Kansas PERS is the second to Evergreen’s fund by a major US investor. Last year, the New Mexico State Investment Council approved a $125m allocation to the fund.

Pope Resources (NASDAQ: POPE) announced today that its subsidiary, Olympic Resource Management LLC (ORMLLC), has closed ORM Timber Fund IV (Fund IV), a private equity timber fund, with $381 million of committed capital, 15% of which, or $57 million, will be co-invested by Pope Resources. ORMLLC is actively looking for timberland properties to acquire on behalf of Fund IV, which will invest in commercial timberlands in the Pacific Northwest region of the U.S.

"We are pleased to announce this capital raise which represents the fourth private equity timber fund that we have created since 2005 when we began executing on the strategy of matching our own capital with that of third parties interested in investing alongside an experienced Pacific Northwest timberland owner," said Tom Ringo, President and CEO. "We currently have $364 million of timberland assets under management in two funds and the closing of Fund IV represents yet another significant step forward in the execution of our private equity timber fund strategy. Through our co-investments in the funds we have been able to diversify our capital over a larger timberland portfolio than we could acquire on our own, allowing us to achieve economies of scale that reduce the cost of managing Pope Resources' 100%-owned timberland while simultaneously earning fees from management of fund assets."