U.S. pension-fund giant Calpers reportedly has lost hundreds of millions of dollars from forest-land investments just before the 2008 financial crisis.
The California Public Employees’ Retirement System headed a group, called Lincoln Timber, that bought 1.4 million acres of southern U.S. forest for $2.38 billion in 2007, a Financial Times analysis shows.
Last month, it sold nearly all of its remaining holdings — 1.1 million acres in east Texas — for $1.39 billion to a group led by CatchMark Timber Trust and including Highland Capital and BTG Pactual’s Timberland Investment Group, the FT said.
The FT said it appears that total sales of the forest land netted $1.85 billion, leaving Calpers and its partners with a $534 million loss before taking into account lumber revenues, inflation, management fees and debt servicing costs
Calpers told the FT it currently held 67 percent of equity in Lincoln Timber. Calpers declined to comment on its losses or whether its stake had fluctuated over time, but a 67 per cent stake would translate into an estimated $355m loss on the portfolio.
“It was just badly structured from day one,” said JJ Jelincic, a former Calpers board member who left the board in January. Another person familiar with the asset said: “Anything that could have gone wrong, did go wrong.”
Meanwhile, many other public pensions around the country are turning more cautious about future results following a nine-year bull market for U.S. stocks, which remain the single largest holding for most retirement systems, the Wall Street Journal explained.
The funds rely on a combination of investment income and contributions from employees, states and cities to fund their mounting obligations to retirees.
The median assumed rate of return held by 130 public pension funds tracked by Wilshire Consulting dropped in 2017 to 7.25%. That median rate was still 8% as recently as 2012.
“We probably want to temper our enthusiasm when we have a year or two years of strong returns because one thing we know for certain is that there will be challenging years,” Wilshire Consulting Chief investment Officer Steve Foresti told WSJ.com.
To be sure, many pension funds for public workers already owe far more in retirement benefits than they have in the bank, and the problem will only grow worse if the economy slows down, according to a recent report.
The study from The Pew Charitable Trusts found that the New Jersey and Kentucky funds are in such perilous shape that they risk running dry.
“Even after eight years of economic recovery — eight straight years of stock market gains — the public pension plans are more vulnerable than they’ve ever been to the next recession,” researcher Greg Mennis told the Associated Press.
(Newsmax wire services contributed to this report).
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