Stafford has deployed 40 percent of the commitments to its $484 million Stafford International Timberland VII, a partner at Stafford Capital Partners’ timber group has told Agri Investor.
Stafford’s latest timber fund, which closed last year at $84 million over its target, has so far been invested most heavily in secondaries, followed by co-investments, said Tom Goodrich. Stafford’s timber group is prohibited from raising another fund until 75 percent of capital has been deployed.
“We typically put our funds to work over a two to three year period,” Goodrich said in a phone interview. “We don’t have any reason to believe that this would be any different – we are seeing strong levels of transaction flow.
“We have a fairly straightforward business; our sole focus is developing and managing highly diversified global timber funds.”
Goodrich described Stafford’s strategy as opportunistic and “tilted towards investments structured as secondaries, co-investments, separate accounts and some primary commitments”.
He said that secondaries typically accounted for 40 to 60 percent of its invested timber funds, but that he had seen the sub-sector account for as much as 100 percent of Stafford timber fund investments in the past.
“We know where the assets are located, we can evaluate how aggressively they have been valued, and we can conduct due diligence on the manager, its strategy, and future outlook for the investments,” said Goodrich on Stafford’s secondaries strategy. “At the same time, secondaries typically trade at a discount because it is a small and illiquid asset class.”
“It’s not like private equity where the top quartile can sometimes see a premium to net asset value, it doesn’t tend to operate that way.”
He said that because of Stafford’s diverse investment strategies, including its fund of funds strategy, Stafford International Timberland VII already has exposure to five different managers “and we would expect that [number] to grow”.
Co-investments, he added, were another way to diversify. Not commenting on the specific assets acquired for the fund, Goodrich said a co-investment might occur in a situation “where a timberland fund manager might have a deal that they are trying to build into their fund, but they don’t want to have as much single-asset exposure or exposure to a different country, or species – so we would work with them to take the amount of exposure they don’t want”.
“When we raised that $484 million pool, it was with the same objective that all of our predecessor funds have had, which is to develop a highly diversified global timber fund, focused on the developed destinations for institutional timberland,” he said.
Talking about timber assets in general, Goodrich said that because they tended to be valued on an annual basis, valuations were not volatile, but that activity in more volatile markets had opened the way for secondaries in timber in 2008.
“Most institutions have much larger allocations set aside for publicly traded assets, so if [as in the global financial crisis ] the public equity markets suffer a significant correction, timber investments that were meant to account for 2 percent of the overall allocation are now much more than that.”
“Institutions sometimes consider selling illiquid assets like timber if that happens. This was a bigger factor in 2008-10 than it is now, but it can still happen.”
Stafford Capital Partners, also manages investments in agriculture, infrastructure and other alternative assets, and has $4.5 billion under management and advice. The firm has teams in the Asia-Pacific region, Europe and the US.