

California Public Employees’ Retirement System, the $295 billion Californian state pension fund, is reviewing its timberland portfolio as investment consultant Wilshire Associates recommends an overhaul of the fund’s allocation.
This could result in a substantial increase in the fund’s exposure to timber, which currently accounts for just 1 percent of the total portfolio.
“The returns of the Forestland Program have not met its benchmark [the NCREIF Timberland Index] over recent periods,” wrote Andrew Junkin of Wilshire Associates in a letter to CalPERS ahead of the board meeting earlier this week.
“There are several structural issues present in the portfolio – lack of regional exposure to the US Northeast and Pacific Northwest, leverage, and the timing of the original purchases – that continue to act as headwinds for the Forestland Program to meet its strategic goals.”
CalPERS’ $2.3 billion timber portfolio is invested across the US, Asia-Pacific and Latin America but through just two mandates. The fund had $1.6 billion invested in Lincoln Timber LP, managed by the Campbell Group, a forest and natural resource investment manager, and $290 million invested in Sylvanus LLC, managed by Global Forest Partners, at June 30, 2013.
Junkin suggested in his letter that more opportunistic buying and selling could improve the portfolio as well as further diversification to spread risks.
He also suggested that the 1 percent allocation was too small to have much of an impact on CalPERS’ overall risk and return.
But, he added, “based on recent transaction sizes in the United States, it would be a massive challenge to increase the size of the Forestland Program to something more impactful, say 5 percent. That 4 percent increase would represent an increase of roughly $12 billion”. That would mean CalPERS owned roughly 3 percent of the entire market, according to Timberland Investment Resources data.