LACERA to consider making ag and timber investments

An upcoming real asset structure review will consider a proposed build-out that could initially include up to four natural resources commitments of between $75m and $500m annually through 2024.

Agriculture and timber commitments are part of a real assets plan to be considered at a future meeting of the Los Angeles County Employees Retirement Association’s Board of Investments.

LACERA staff counsel John Harrington confirmed to Agri Investor in an email that potential investment pacing and structures for such investments are among matters to be discussed at an upcoming real asset structure review.

No such structure review is listed on the agenda for LACERA’s last meeting, held on November 5. LACERA chief investment officer Jonathan Grabel told Agri Investor that the agenda for the following board of investment meeting on November 20 has not been finalized.

It remains unclear if the potential ag and timber commitments will be discussed at this meeting.

In a January 2018 memo, Grabel wrote that ag and timber could be added to LACERA’s portfolio for the first time following completion of an asset allocation study being carried out by Meketa Investment Group, StepStone and The Townsend Group.

According to a September review prepared by LACERA principal investment officer John Rice, the $58.4 billion pension will aim to create a 17 percent real assets allocation that will include natural resources, real estate, infrastructure and TIPS (treasury inflation protected securities).

The natural resources and commodities component of the proposed real assets allocation will constitute 4 percent of the total fund and house any future LACERA investments in energy, metals and mining, in addition to ag and timber, according to the review.

LACERA’s natural resource investments will be concentrated initially in developed markets and global funds. The review identified likely commitment ranges as being between $75 million and $500 million for up to four natural resources commitments annually through 2024.

Though closed-end funds will be the primary vehicles in its real asset investments, the review does highlight the potential for LACERA to provide an anchor investment to an open-ended fund that provides “early exposure to income-producing core infrastructure and agriculture.”

For agriculture, LACERA will target deal returns between 7 and 20 percent and loss-adjusted IRRs at the fund level of between 5 and 11 percent. LACERA’s timber investments, the review said, will target deal returns between 7 and 15 percent and fund-level IRRs of between 5 and 8 percent.

In an overview presented to LACERA in September, real assets consultant Albourne highlighted that niche strategies focused on environmental considerations like carbon offsets, development mitigation and sustainability are bringing new opportunities for timber managers.

“Social engagement has expanded the definition of stakeholders beyond solely economic to incorporate public interest, adding emphasis to environmental considerations and portfolio utilization,” Albourne wrote. “This shift necessitates new expertise to optimize financial benefits from governance while also addressing value creation and preservation.”

Albourne also highlighted environmental considerations as among key trends to be considered in the agriculture market, alongside the development of more specialized paths to meet strategic objectives and other hints of how the market may evolve.

“Indirect play on water allows managers to provide capital to improve efficiency of scarce resources in a manner that improves the resource itself,” Albourne wrote. “Academic and stakeholder partnerships are becoming a key success factor in this strategy.”