Mimicking the cautious recovery of timber portfolios across a number of North American pensions, the Montana Board of Investments has posted results that depict the asset class as a net contributor to the cash flows generated by its natural resources holdings.
The $17 billion pension had $103 million in timber assets as of December 31, 2017, which brought in $778,000 in the last quarter. This helped compensate negative cash flows from Montana’s energy holdings, which leaked more than $16 million in cash in Q4.
“There are pockets of distress in the energy market,” commented Ethan Hurley, director of private investments at the institution, contrasting it with the “robust” standing of the timber markets. “There is high demand from China. Prices have been trending up and housing starts are up,” he added.
Montana’s timber program, initiated in 2011, is run through four funds: the ORM Fund III and IV, RMS Forest Growth III and Molpus Woodlands Fund III.
As at 30 September, the portfolio was posting a net IRR since inception of 4.9 percent. While noting that “the price of oil remains range-bound by an oversupply in the market, coming from the Middle East,” Hurley said that energy performance was higher since inception, at 6.3 percent.
Montana’s timber holdings are mainly located in the West and South of the US, where, despite notable disparities, assets have on average performed well in recent quarters. “Both the energy and timber portfolios are North American-centric, but broadly diversified regionally,” the pension said.