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US-Based LPs Continue to Dominate Timber Investments – October 2012

LP interest in timber funds continues to increase, with a number of US-based investors including timber investments as part of their private equity portfolio. Preqin currently tracks 4,544 LPs active in the private equity asset class, 214 of which are interested in investing in timber funds. There has been an increase in the number of LPs with an interest in timber investments, with 4.7% of the LPs currently tracked by Preqin expressing an interest in the fund type, compared to 3.9% of LPs as at the end of Q1 2012.

New Mexico State Investment Council recently committed $100mn to Brookfield Timberlands Fund V, and New Mexico Educational Retirement Board has approved a $30mn commitment to Brookfield Brazil Timber Fund II. Additionally, Montana State Board of Investment is planning to commit to timber vehicles going forward, having recently issued a request for proposal for a timber fund manager.

A number of US-based LPs have separate allocations to timber funds as part of their private equity portfolios. Massachusetts Pension Reserves Investment Management Board has a long-term target allocation to timber and natural resources funds of 4% of total assets under management, representing more than a quarter of its target allocation to private equity, which stands at 14% of total assets under management. Furthermore, Ohio Police Fire and Pension Fund has maintained its interest in timber funds following the decision to create a separate allocation to these vehicles, having increased its timber allocation to 3% of total assets earlier in the year, which comprises almost a third of its overall private equity allocation.

Of the LPs that have an appetite for timber funds, US-based investors account for the vast majority (83%). The timber industry in the US is somewhat more mature than in Europe and Asia, which perhaps explains why so many LPs based in the region have an interest in such investments compared to LPs located elsewhere. When looking at the types of investors that invest in timber funds, public pension funds represent the highest proportion of LPs with an appetite for this fund type, representing over a third (35%) of such investors. Endowment plans and foundations also represent a significant proportion, representing 17% and 16% of LPs with an interest in timber funds respectively. Again, this is perhaps due to the high concentration of these investor types in the US.

Although LPs have shown an increased appetite for timber funds over the past 12 months, fundraising for these vehicles has still been a challenge, as with many other fund types at present. Timber fundraising reached a peak in 2008, with five funds reaching a final close raising an aggregate  $2.9bn, but fundraising levels since have been unable to match this amount. In 2011, the same number of funds raised an aggregate $1.1bn.

It is evident that timber funds are becoming increasingly popular among LPs, as they seek to hold diverse portfolios of investments over the long term. Although timber fundraising has struggled over the past few years, as with many other fund types, a number of LPs have made new commitments to such vehicles recently. Furthermore, LPs are now creating separate target allocations to timber funds, indicating this fund type will become an increasingly significant part of LPs’ investment portfolios in the near future.

 

Posted by Joanna Nye on 30-Oct-2012

Keywords: private equity, timber, investments, LPs