The Massachusetts Pension Reserves Investment Management Board’s timber and real estate committee has endorsed proposed changes to the mechanics, scope and focus of the $68.5 billion pension’s timber strategy.
The changes, formulated with consultant International Woodlands Company, will officially come into force following approval of the full MassPRIM Board on February 15, MassPRIM director of communications Eric Convey told Agri Investor.
Director of real estate and timberland Timothy Schlitzer said MassPRIM’s updated timberland investment policy would increase the maximum exposure to ex-US timber markets from 10 percent to 30 percent, according to meeting materials from the pension’s real estate and timberland committee on January 31.
“These ranges more accurately reflect the global market opportunity, as well as PRIM’s previous and current acquisition activities in Australia and New Zealand,” Schlitzer said. “Furthermore, the increased geographical diversification should enhance the portfolio’s risk profile by increasing exposure to differentiated timber predicts and end-markets.”
New root to market
While current policy continues to limit MassPRIM’s international timber investments to the Australian and New Zealand markets, staff plans to investigate timber opportunities in Chile as part of its 2018 investment plan.
Acquisition activities referenced above are addressed elsewhere in the meeting materials, where MassPRIM reveals an additional investment of $214 million into OneFortyOne Plantations, an Australian forestry consortium managed by Campbell Global, an Oregon-headquartered timber investment management organization.
“Club investments and co-investments can be considered only where PRIM’s substantial control and influence are maintained”
MassPRIM timber and real estate committee, meeting materials
MassPRIM’s investment, according to the meeting materials, will be used to support OFO’s announced acquisition of Nelson Properties Limited, a 191,437-acre radiata pine property in New Zealand, from New Hampshire-headquartered Global Forest Partners.
The transaction is pending approval of New Zealand’s Overseas Investment Office and expected to close this year.
“Nelson will provide OFO and PRIM’s broader portfolio with diversification benefits, additional export opportunities, management efficiency and a group of highly-skilled employees,” MassPRIM wrote. “Underwritten returns indicate a return premium of approximately 25 percent over similar US timberland investment opportunities.”
Another proposed change to MassPRIM’s timber investment policy approved was the addition of new risk criteria to be monitored on its timber investments. To a list that already includes “state”, “age-class” and “wood type,” the proposed additions include “wood product” and “end market,” according to the meeting materials.
At the end of last year, MassPRIM’s $2.5 billion timber portfolio, which does not utilize leverage, had grown at an 8.3 percent pace, surpassing the benchmark NCRIEF Timber index by 5 percent. Over the trailing three, five and 10-year periods, however, the portfolio underperformed the benchmark by as much as 1.2 percent.
MassPRIM’s timber portfolio is held in two separate accounts managed by Atlanta-headquartered Forest Investment Associates and Campbell Global, respectively. The pension plans to keep on using the structure owing to the control and transparency separate accounts provide, according to the meeting materials.
“Club investments and co-investments with few other professional investors with strong aligned interested can be considered only where PRIM’s substantial control and influence are maintained. Particular attention should also be paid to clear liquidity options,” MassPRIM wrote.
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