UNITED STATES - California Public Employees Retirement System (CalPERS) has made an initial new allocation to invest 1% of its total plan assets in timberland, which means $2.4bn (€1.6bn) could be invested to the property type over several years.
Proposals to invest in timberland are the vision of Russell Read, the pension fund's chief investment officer as he believes this is a good time to place capital in natural and renewal resources as a hedge against inflation.
CalPERS could allocate up to 2% of its assets in the sector, and will be looking to invest the capital through a combination of investment structures, including commingled funds and separate account relationships with timber managers.
The fund will invest in timberland both on a domestic and an international basis but it is understood minimum return requirements are for the property type to exceed the US Consumer Price Index (CPI) by at least 5%.
Leverage could be placed on the portfolio but will be no greater than 50%.
CalPERS have decided to put timberland into a newly-created asset class, known as the inflation-linked asset class, which also contains commodities and bonds.
A fourth component of infrastructure is expected to be added to this new asset class in the future. However, a policy for this strategy will only be considered by the pension fund at a later meeting of its investment committee, as officials believe it needs more time to work on this, given the complexity of infrastructure.
CalPERS announced in September 2007 it had approved the development of an infrastructure program. (See earlier IPE Real Estate story: CalPERS approves infrastructure pilot program)