REAL ESTATE - San Bernardino County Employees Retirement Association has decided to expand its asset class for investing in timberland from 2 to 4%.
The pension fund feels that timber deserves its own asset class. Investment officer Don Pierce said: "It’s our opinion that timber should have its own asset class as it really doesn’t correlate with anything else. It really has features like you are operating a business."
US pension funds have two views as to how to place timber assets in their portfolio. Some like San Bernardino give the property type its own asset class, while others put it into their real estate asset class.
Timber assets should produce solid long term returns. Pierce said: "This asset class should deliver returns that don’t up and down very much, but should give us another layer of diversification."
The pension fund is projecting that timber assets will achieve a 6% real rate of return over the next 10 to 20 years.
The outcome of a recent fund board meeting was that the pension fund made two commitments to two timber commingled funds. One was a $30m ($22m euros) to the Timber Vest Partners II fund, which will be a commingled fund with a total equity raise of $600m. The investment strategy is to invest in timber in the US.
San Bernardino County also allocated $30m to invest in GMO Long Horizons Forestry Fund. This commingled fund will have a total equity raise in the neighborhood of $300m to $350m. This investment fund will be looking for assets in the US and internationally.
The pension fund has been investing in timber assets for the past couple of years. Its other timber manager is Hancock Timber.
San Bernardino County is planning on taking the rest of the year off before looking at investing in timber again. It will look at the asset class again during the first or second quarter in 2008. The amount of capital that is available to invest is in the range of $40m to $60m.