The New Mexico Education Retirement Board (NMERB) has $333.5 million committed to or invested in agriculture, timber and mitigation banking, and is planning to add up to $60 million to its allocation.
Senior portfolio manager for real assets at NMERB, Mark Canavan, told Agri Investor that the pension planned to add $20 to $30 million and $20 million respectively to its timberland and agriculture pools this year, and was also likely to re-invest with Halderman Farm Management, which it first mandated in 2011.
He added, however: “We are looking at doing around another $60 million in commitments this year in ag and timber, but that is subject to change. The energy markets are providing some very compelling opportunities. We may focus more attention there.”
Canavan said the pension fund also had a transaction lined up to invest in Latin American agriculture. This would mean going outside the US agriculture for the first time. However, the decision is not final and Canavan did not feel “that compelled to leave US territory” yet.
Domestically, the pension is considering committing $20 to $30 million to Conservation Forestry Capital Fund IV, and has formally committed an additional $50 million in the recently closed $303 million mitigation banking Ecosystem Investment Partners (EIP) Fund III. It had previously invested $25.5 million.
“We have and will probably up our investments in Conservation Forestry,” Canavan told Agri Investor.
“The strategy is to buy a working forest in an area where multiple interests would like to see that the property is never developed. They sell off the future development value of the property, place the property in a conservation easement and act as a good land steward … You reduce volatility associated with highest and best use terminal value assumptions, and your up-front price risk. It turns into a yield vehicle.”
The $11.1 billion LP had $340 million committed to and $175 million invested in vehicles across farmland, timberland and conservation last year. It now has deployed $78 million in timber, $61 million in agriculture and $26.5 million in mitigation banking, and has uncalled commitments of $40 million in timber, $69 million in agriculture and $50 million in mitigation banking. Real assets now make up 8 percent of pension fund’s allocations, with 4.5 percent in natural resources – agriculture, timberland, conservation and energy – and 3.5 percent in infrastructure.
In its agricultural strategy, NMERB retains more control than many large LPs in the asset class.
“We have companies that we employ to deploy capital for us, but we retain some form of underwriting and veto control,” said Canavan. “We inspect the properties, and one of our representatives goes out and does a validation of the underwriting before we go forward. We are actively involved. In essence, these are direct programmes, [and] we own the properties.”
Mitigation banking is becoming an important aspect of NMERB’s real asset portfolio, driven partly by government support for the sector, Canavan said. He added he was confident the pension’s recent commitment to Conservation Forestry Capital Fund IV and EIP Fund III will yield good returns.
EIP held a final close for its EIP Fund III in February. NMERB’s new commitment will be invested over three years. “Realisations on our prior commitment will be [seen] over several years” added Canavan. “Mitigation banking returns are not only after fees, but they are also unlevered. Some people may find a 13.9 percent after fees mediocre, until they find out it is unlevered. We have $25.5 million in the ground now with EIP, and $50 million is to be added over three years in even increments.”