ACERA to make ag and timber pledges in effort to boost real assets

As it scouts the market for private infrastructure, timber and farmland funds, the $8.1bn pension has created a temporary allocation to invest in passive vehicles offering exposure to the same underlying assets.

The Alameda County Employees’ Retirement Association has finalized a change to its real assets policy that will result in at least one $55 million timber or farmland commitment in 2020.

According to documents posted on the $8.13 billion pension’s website, ACERA will look to invest in privately placed funds focused on sectors with inflation-sensitive assets such as energy, mining, infrastructure, timberland and farmland. The investments will come as part of ACERA’s efforts to increase its real assets program from 3.78 percent of the overall portfolio currently to 5 percent by 2025-26.

Because it will take several years to place capital into those private funds, ACERA also has moved to create a “liquid pool” that will provide exposure to the underlying asset classes in the interim. That liquid pool will invest in passive investment vehicles, 15 percent of which are to be devoted to commodities, 50 percent to listed natural resources equities and 35 percent to listed infrastructure equities.

“As commitments are made to the illiquid, privately placed vehicles in the illiquid pool and the associated capital is called, the liquid pool will be used as a draw-down vehicle to fund the illiquid pool’s capital calls dollar-for-dollar,” ACERA staff wrote.

Verus, ACERA’s consultant, plans to present finalists for managing the liquid pool next month.

According to a memo from John Nicolini, managing director and senior consultant at Verus, Wednesday’s meeting finalized a set of changes to ACERA’s real assets policy approved in 2016 after an initial policy adopted in 2011 was found to have underperformed and produced a considerable amount of volatility.

“The plan put forward would involve moving the portfolio away from a commodity-futures-heavy allocation and into both a diversified private markets portfolio and a liquid portfolio that would allocate to commodities, natural resources and infrastructure,” Nicolini said.

The move away from commodities and treasury inflation-protected securities (TIPS) was motivated, Nicolini noted, largely by 10-year return forecasts of 4.3 percent for commodities and 7.1 percent for infrastructure, compared with just 2.6 percent for TIPS.

Nicolini said that though Verus does not use a projection for natural-resource returns, it assumes vehicles will target “private-equity-like” returns of at least 6.4 percent.

According to a commitment schedule present within the materials Verus provided to ACERA, plans call for investment of $80 million in two infrastructure funds this year and an additional $65 million in two additional infrastructure funds in 2019, when it will also plan a single $30 million commitment to mining.

A combined timberland and farmland category is scheduled to receive a single commitment of $55 million in 2020, according to the schedule.

ACERA did not reply to messages seeking further detail by the time of publication.