Kentucky Teachers ups Molpus timber account to keep pace with fund growth

Executive secretary Gary Harbin says KTRS expects its separate account to yield an 8% annual return when measured over an envisioned 30- to 50-year hold period.

The Kentucky Teachers Retirement System has increased the size of its separate account managed by Molpus Woodlands Group by approximately $100 million in order to maintain timber’s role in the overall portfolio following recent growth.

KTRS executive secretary Gary Harbin told Agri Investor the $20.1 billion pension had approximately $8 billion in assets under management when it started investing in timber around 2005. The recent decision to bring its investment with Molpus from $153 million to $250 million, he said, comes after a periodic review and was designed to maintain timber’s position within the overall portfolio.

Harbin said KTRS houses its timber investments within an alternatives allocation that has a target of 10 percent but does not include any specific target for timber.

“Being a permanent pension plan, every day when we wake up, we are 35 years old looking 20 years into the future,” Harbin explained. “We keep our asset allocation based on that type of thinking and keep rebalancing back to that asset allocation and that generates returns for us. It forces us to buy when the market is down, forces us to sell when the market is up and it does what a long-term investor should, which is focus on the long-term and keep your portfolio well-balanced.”

Years of study preceded KTRS’ entry into timber, Harbin said, and the fund decided early that a separate account structure would provide advantages over investing in a fund, which often have investment periods of between 10 and 15 years. Based on an assumption KTRS will hold its timber properties for between 30 and 50 years, he said, the pension expects its timber investments to yield an 8 percent annual return.

“There is a good deal of turnover in the property itself because of those funds,” said Harbin. “We don’t see the purpose in turning the property over and selling out of one fund and starting another fund. Our preference is to own the timber and let it grow, harvest it, and treat the investment as a true timber investment.”

Approximately two thirds of the timberland held within the KTRS separate account is softwood properties in the US Southeast, with the remaining third of the portfolio devoted to Upper Michigan hardwood properties, according to Harbin.