CalPERS' investment consultant is recommending that the $234.3 billion retirement system broaden its timberland program beyond the southern U.S. to other parts of the country.
Wilshire Associates, in a report presented Monday to the committee, cited the lack of exposure to the Northeast and the Pacific Northwest as a factor in causing the $2.1 billion timber portfolio of the California Public Employees' Retirement System, Sacramento, to underperform its benchmark over the one-year and three-year periods ended Dec. 31.
Statistics presented at the CalPERS meeting show that the forestland portfolio returned -10.7% for 2011 and -3.5% for the three years ended Dec. 31. The NCREIF Timberland index, the portfolio's benchmark, had a 1.6% gain in 2011 and a -1.6% return for the same three-year period.
CalPERS statistics show that 78% of its timberland portfolio is domestic forestland, primarily in the South, and 22% is international.
The retirement system's own program review said that southern U.S. timber markets experienced continued weakness because of the sluggish U.S. housing market, where prices may be at or near bottom.
The Wilshire report said that additional regional diversification within the U.S. would be beneficial as the program evolves in the future. But it acknowledged that may not happen quickly.
“However, Wilshire recognizes that the timber market is fragmented and significant parcels are sought after by many investors. Thus, pricing cannot be ignored in the continued management of this portfolio and this may cause the portfolio to evolve rather slowly,” the consultant stated in its report.