A new group of institutional investors is committing capital to timber, aiming to benefit from attractive investments in new markets overseas.
The asset class, also called forestland, is small but growing. Institutional capital invested in timber grew to more than $57 billion as of June 30, up from less than $1 billion in 1989, according to Boston-based forestland research firm RISI Inc. A number of pension funds — including the Oregon Investment Council, which runs the $69.7 billion Oregon Public Employees Retirement Fund; the $103.6 billion Washington State Investment Board and the $6 billion Missouri Local Government Employees Retirement System — as well as sovereign wealth funds like the $5 billion Fundo Soberano de Angola and the $51 billion Alaska Permanent Fund Corp., have made additional investments or increased allocations to timber ovWashington State Investment Boardllion Washington State Investment Board and the $6 billion Missouri Local Government Employees Retirement System — as well as sovereign wealth funds like the $5 billion Fundo Soberano de Angola and the $51 billion Alaska Permanent Fund Corp., have made additional investments or increased allocations to timber over the past year.
Institutional investors worldwide are building their timber investments for diversification from traditional asset classes and even commercial real estate, said Dania Zinurova, manager research, diversifying strategies in the Sydney office of consulting firm Towers Watson & Co.
Investors get a stable core-type return with very little volatility, Ms. Zinurova said. And even though returns plummeted last quarter, annual returns have been 9% to 10% over the past three years, according to the National Council of Real Estate Investment Fiduciaries' timberland indexes.
While 80% to 90% of the timberland investment is now in the U.S., Canada, Australia and New Zealand, more investors are looking at emerging and semi-mature forestland in Latin America, Asia, Africa and Europe, according to the 2015-2019 Timberland Investment Outlook from timber manager New Forests, a timber manager based in Sydney.
In June, money manager TIAA-CREF and subsidiary timber manager Greenwood Resources LLC closed on a $667 million global timber company, Global Timber Resources LLC. Global Timber Resources will invest in land throughout North America, Latin America, Europe and Asia. The company has capital commitments from several investors, including Canada's C$240.8 billion ($182 billion) Caisse De Depot et Placement du Quebec, Sweden's 293.9 billion kronor ($39.6 billion) AP2, and the U.K.'s £16 billion ($24.8 billion) Greater Manchester Pension Fund.
In December, the Church Commissioners for England, London, bolstered its growing timber portfolio — about 4% of its total £6.7 billion assets — buying a £49 million timber portfolio.
Other managers including Campbell Global LLC (which changed its name from Campbell Group in 2014) and Hancock Timber Resource Group now offer global strategies.