Many public pension plans have been moving into timber for diversification. The $5 billion Missouri State Employees' Retirement System, Jefferson City, issued RFPs for its first timber managers, which will run up to 5% of assets, said Tricia Scrivner, manager of alternative investments. MOSERS officials decided to add timber following an asset allocation study conducted last June by actuary Gabriel Roder Smith & Co., Southfield, Mich.; consultant Summit Strategies, St. Louis; and fund staff. "We like the inflation hedge, cash flows and long-term appreciation it offers," Ms. Scrivner said.
Another newcomer to timber is the North Dakota State Investment Board, Bismarck. "I like it for its lack of correlation with other asset classes and its diversification," said Steve Cochrane, executive director at the $2.1 billion plan. The system recently committed an additional $40 million to Evergreen Investments, Boston, after committing $43 million to the timber manager a year and a half ago, Mr. Cochrane said.
Pension programs such as the US$45 billion Ontario Teachers' Retirement System, Toronto, have been gradually building portfolios. Ontario Teachers has a target allocation of 2% of assets, said Leo de Bever, senior vice president, who noted that he's been looking at timber deals for two years. "It's very tough to invest in," he said. "You need a lot of expertise to understand its rewards. Prices have been weak because of the slow global economy, so it's a good time to buy. I like the fact that the trees grow independent of management, so if the market is bad, you can let the trees grow longer and pick your exit point."
The $10 billion San Francisco City & County Employees' Retirement System will decide at its June 10 meeting whether to add the asset class, said David Kushner, deputy director for investments. Two consultants and staff have already recommended against it because the fund would have to allocate 5% of assets for the investment to have an impact, Mr. Kushner explained. Timber has an expected return of 8%, but the system is already getting a return of more than 12% from its real estate investments and a return of 500 basis points over the Standard & Poor 500 index in its alternatives portfolio, so the fund doesn't need the additional diversification benefit, Mr. Kushner added.