A strategic review of CalPERS' real assets program slated for the spring could mean a decision on whether the pension fund's forestland portfolio will be eliminated.
Andrew Junkin, president of Wilshire Consulting, said in a memo contained in agenda materials for the pension fund's Dec. 14 investment committee meeting that investment staff members are expected to express their view at that review as to how the program “should best progress in the context of the total fund portfolio.” Wilshire Consulting is CalPERS' general investment consultant.
Mr. Junkin said the current $2.2 billion forestland portfolio, which represents less than 1% of total assets, is “not sufficient to meaningfully affect the performance characteristics of the total fund.”
The California Public Employees' Retirement System, Sacramento, has $293.6 billion in total assets.
“Moving to a 5% target, which would be meaningful, would require tens of billions of dollars of transactions and would likely take years to accomplish,” Mr. Junkin said in the memo. “Staff continues to assess the efficacy of the program in light of these constraints.”
The program has underperformed its benchmark, the NCREIF Timberland index. For the five years ended June 30, the forestland program returned an annualized 1.1%, 727 basis points below the benchmark.
Mr. Junkin said there are several structural issues with the portfolio, including a lack of regional exposure to the U.S. Northeast and Pacific Northwest markets. CalPERS' U.S. portfolio is concentrated in the Southeast. Timber prices in the Southeast have trended flat recently while Northeastern and Northwestern prices have experienced upticks, Mr. Junkin said.
CalPERS also owns forestland in the Latin American and Asia-Pacific markets.
Any decision to eliminate the forestland portfolio would have to be approved by the investment committee.