The $10.5 billion San Diego County Employees Retirement Association (SDCERA) is planning to invest a further $50 million to $75 million into timber during the first quarter of this year and is likely to hire external managers to this end, according to a board meeting presentation last week.
The fund is also considering committing a further $100 million-$150 million into agriculture by the end of the year. Half of this will be invested during the second quarter of the year and the other half during the fourth, according to the presentation. These commitments are likely to be “re-ups” with existing fund managers.
“The managers we have [in these real assets] and for potential re-ups are our highest conviction managers,” said Loren De May, director, private markets, speaking at the board meeting. She added that one agriculture manager is likely to have a short fundraising period due to the high likelihood that several existing investors will return.
The increases are part of a wider real assets increase planned, which include increased exposure to energy and mining assets too.
By committing $300 million every year, the institution should reach the 10 percent real assets net asset value allocation target by late 2017. A slower pace of investment of $200 million every year would make it reach the target in late 2018, according to the presentation. The net asset value of the real assets portfolio was 5.9 percent as at the end of September 2014.
Commitments into real assets in 2013 and in 2014 were under $100 million and were “slow years”, according to de Mey.
“Some years we might see a lot of great opportunities and commit more than $300 million but other years could be less,” she said. “We will never say we have to commit $200m. It’s really being driven by the opportunity.”
“So far we have been seeing good opportunities this year,” she added.
Some concerns were voiced among board members that the 10 percent target was too high due to commodity exposure within the equities portfolio. Others asked about the potential performance for the portfolio without an inflationary environment.
“The portfolio is performing quite well without inflation,” said De May. “These are stable assets we are investing in which provide a lot of diversification to the portfolio and some have a yield component so it makes sense in any environment, although inflationary returns would be much higher.”
De May and the board also discussed using the NCREIF Farmland and Timber Indices as sub-indices for the asset class alongside other benchmarks.
The board meeting took place last Thursday, January 15.
Albourne is SDCERA’s real assets investment consultant.