Tuesday, May 19, 2015

Largest Public Employee Pension Plan Seems Lost (plus a primer on timber investing) CalPERS

Talk about zigging when they should zag. Although not as egregious as the October 2008 move we noted in "Calpers Sells Stock Amid Rout to Raise Cash for Obligations" with the comment "This is hedge fund behavior, selling your most liquid investments to prop up the illiquid."

CalPERS' adventures in alt-land, even disregarding the bribery/corruption scandals, have been disastrous. From being Goldman's muppet in the long-only commodity investor racket to the raw-land-at-the-peak-of-the-cycle to the Stuyvesant Town/Peter Cooper Village debacle, you'd almost think it had to be deliberate.

Yeah, we're familiar with their action.

From FT Alphaville:

Is Calpers missing the forest for the trees?
The California Public Employees’ Retirement System, which manages more than $300bn on behalf of current and future retirees, is thinking about selling much of its timber assets, according to the Wall Street Journal.
Specifically, it has offered to sell about 300,000 acres in Louisiana — about 16 per cent of its total forestry holdings — and if this goes well, Calpers could then sell another 1,000,000 or so acres in east Texas, which would cut the total portfolio by around 80 per cent.

The puns practically write themselves:
– Calpers makes like a tree and leaves.
– Sacramento pension fund goes Lumber Liquidators.
– Bear shits on the woods.

According to the Journal’s anonymous sources, the biggest problem has been low returns. Much of Calpers’s timber assets were acquired during the housing bubble, when forest prices were high in the expectation of robust demand for wood to build homes. In the past five years, Calpers’s returns on timber have been negative.

(Okay, one more pun: if an illiquid asset is marked down without anyone around to trade it, did the owner actually lose money? Calpers’s holdings are currently worth more than all of the timberland transactions that occurred in 2014, according to the Journal.)

Besides the puns, there are other grounds for mocking Calpers’s latest decision. This is the same pension that stopped investing in hedge funds in part because it was unusually bad at picking active managers. As it happens, Pensions & Investments reported as recently as December 2013 that Calpers’s managers were considering plans to add to their forestry portfolio before, apparently, changing their minds. The latest rumours probably tell us more about Calpers’s ability to invest responsibly on behalf of its beneficiaries than about the appeal of timberland as an asset class.

Seriously though, all of this presents as good as an opportunity as any to ponder what pension funds are for and how they ought to invest....MUCH MORE
We have hundreds of posts on CalPERS, here's a Google search of our little blog:
site:climateerinvest.blogspot.com CalPERS
We also have quite a bit on timber as an asset, beginning with a quote lifted from the long-haul insurance company asset managers:

"The only quarter a timber investor should be interested in is the next quarter century"

Previously in the Paul Bunyan series:
"A Fine Time for Timber" (WY)
There are a half-dozen ways to invest in timberland, the REIT's being one of them. Unfortunately for non-institutional investors there are no pure play portfolio investments and neither the ETF's (CUT; WOOD) nor the REIT's are perfect proxies for timber. POPE Resources is set up as a Master Limited Partnership with a higher correlation to timberland. A couple of London traded vehicles, Phaunos Timber and Cambium Global Timberland Limited also have higher correlation to timberland.

If you can do direct investments the Timberland Management Organizations (TIMO's) will get you even more correlation with Forestland Group (3.5 MM acres) Campbell Resources (3.1 MM acres)  and Hancock Timber Resources Group ( 6.5MM under management) being the largest.
"Investing in Timber and Farmland" 

Grantham, Mayo, Van Otterloo: "A Farmland Investment Primer"

And many more, use the search blog box keyword 'Timber', if interested.