St Louis Firefighters’ plan looks to dampen volatility with timber or farmland

Dahab Associates chief investment officer Steven Roth says he expects the $139m pension to finalize a commitment of 5 percent of its total portfolio by the end of the calendar year.

The Firefighters’ Retirement Plan of the City of St Louis is working with investment consultants Dahab Associates to add a 5 percent allocation to farmland or timber.

Plans call for the $139 million pension to work with Dahab to fill the allocation through a questionnaire to be distributed later this summer. A decision on investment is likely to be finalized before the end of the year.

The addition of a timber/farmland allocation will draw capital out from St Louis Firefighters’ existing public equity allocation and was included within changes to its investment policy statement finalized late last month.

Dahab managing director and chief investment officer Steven Roth told Agri Investor the main motivator for his firm’s recommendation to add real assets came from its judgment that the pension had slightly too much volatility risk.

“We’ve been running this thing pretty high on the volatility spectrum just because it’s a newer plan that was cash-flow positive and checked all the boxes. Now that it’s becoming a little bit more retirees, we just want to dial back the volatility a little bit. We can take the illiquidity risk,” he said. “Timber/farmland typically returns less than public equities, but we’re going to accept that for a little bit less volatility and a little bit more diversification.”

St Louis Firefighters’ is hoping to cast a wide net and will consider both open- and closed-end vehicles focused on either or both timberland and farmland, Roth said. He added that he expects to receive between 10 and 20 manager responses to the questionnaire, three or four of which will be invited to present directly to the St Louis Firefighters’ Board upon review by Dahab.

“You always see the bigger ones [managers] and the smaller ones come and go, depending on whether they have a fund in the market or not,” he said.

New York-headquartered Dahab is currently in the process of receiving responses to a separate request for proposals to manage $35 million farmland allocation for the City of Fort Lauderdale General Employees Retirement System. Reponses to that search are due by May 12.

The firm also administered a timber- and farmland-focused search for the Chattanooga Police and Fire Pension Fund in 2018 that attracted responses from Campbell Global, Chess Ag, Fiera Comox and others before resulting in investments with Molpus Woodlands Group and UBS Farmland Investors.

Roth said openness to different asset classes varies widely among Dahab’s public pension clients, which generally have around an average of $300 million in assets under management. He added the firm takes pride in its focus on educating clients and has long preferred farmland and timberland over more esoteric investments.

“We like low leverage, something we can see, hold and avoid permanent loss of capital on. With timber and farmland we can hold the assets for a while,” he explained. “When you get into hedge funds and other things, you don’t know what they are investing in, you don’t know the leverage they are using. You can wake up one morning and have half your assets gone.”