MassPRIM started investing in timberland in 2002 as one of the earliest institutional investors to embrace the asset class. Here Tim Schlitzer, director of real estate and timberland, tells Agri Investor where the fund is now.
Where and how does timberland fit in your portfolio?
We look at timberland as an income-generating strategy with a low correlation to stocks and fixed income and a high correlation to inflation. Timberland is its own asset class in our portfolio with a four percent asset allocation target. We target an eight percent nominal return.
How has the timberland investment market changed since you started investing in 2002?
The buyer pool has clearly increased and the type of buyer has also changed as a wider range of institutional investors come into the mix. With this the TIMO [timberland investment manager] universe has also increased.
How much of the four percent target allocation is currently deployed?
We have $1.4 billion in the asset class now which represents 2.5 percent of the total portfolio so we need to invest a further $470 million in the asset class to reach the target.
How long do you expect this to take?
There is limited supply in timberland so the infrequency of timberland transactions makes it hard to estimate when the allocation will be fully invested but it could take just one large deal to fill the allocation as we are open to buying very large tracts of land.
What types of timber investments do you look for?
We prefer more mature timber properties that are in deeper markets with multiple potential buyers of the timber, multiple production facilities, exposure to export markets, a good diversification in the age of the trees, a good growing environment and good soil conditions.
Do you use external managers?
Currently both the Campbell Group in Oregon and Forest Investment Associates in Atlanta are our mandated managers. We are not looking to mandate any other firms this year although we always welcome conversation with the market.
What are the best attributes of a timberland management firm?
They have to have a deep understanding of forest management and ‘silviculture’ [the process forest managers use to control how forests develop]. They also need to have an understanding of the log markets to maximise timber sales and we look for firms with a deep understanding of and use of technology. We do not mind if the manager operates the forests themselves or outsources operations. We give managers the discretion to choose operating partners but we need to have a deep understanding of the process they use to select them.