Agri and timber returns in the slow lane at UC pension

The asset class sits in the middle of overall real assets performance for the $62bn pension, avoiding the dismal fate of energy but falling well short of infrastructure’s stellar IRRs.


University of California’s retirement plan is posting middling returns for its agriculture and timber strategies at a time when its other real asset holdings stand far apart on the performance spectrum.

The $61.6 billion institution’s agriculture and timberland holdings, which account for 19 percent of its real assets portfolio, generated net IRRs of 2.1 percent for the three months to June 30, bringing its year-to-date performance to 5 percent.

The stats are in line with longer horizons, with one-year, three-year and five-year returns respectively at 3.6 percent, 6.6 percent and 4 percent. As of June 30, the program generated a yearly 5.4 percent since inception.

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Ag and timberland beat UC’s real assets average for all tenures but one – largely thanks to the dismal performance of energy, for which three-year returns stand at -26.3 percent. Yet its resilience is no match for infrastructure’s stellar returns, which top 13 percent for the year to date and fall just short of 18 percent on a one-year horizon.

“In general, we’re approaching this as a continued low-growth, low-return environment, and we have to temper our expectations accordingly,” said Richard Sherman, chair of the UC investments subcommittee.

“We’re in uncharted territory and so in a place of extreme caution. We have to stay highly attuned to where our assets are deployed on a broad level and moderate our return expectations for our products.”

The university managed $109.8 billion in total assets as of June 30, with the remainder comprising $14.2 billion of working capital, a $22.3 billion retirement savings program and the $0.9 billion Fiat Lux insurance company. Its ag and timberland holdings total $38 million.

Additional reporting by Alex Lynn