Canadian pension fund likes NZ forest growing conditions

Wednesday 19th December 2012

Canada's Public Sector Pension Investment Board is looking to capitalise on favourable growing conditions and access to Asian markets having taken a 30 percent stake in the central North Island's Kaingaroa forestry estate.

The Canadian fund sees the 178,000 hectare Kaingaroa estate as an "attractive asset" that has been "very successfully" managed by Timberlands for many years, spokesman Mark Boutet said in an emailed statement.

Among the reasons cited for the investment, Boutet said "there is a strong local domestic softwood processing industry as well as good access to Asian export markets" and that "New Zealand's central North Island has some of the best growing conditions for softwood plantations."

PSP Investments, which manages C$64.5 billion pension fund for Canada's public service, the Canadian Forces, the Royal Canadian Mounted Police and the Reserve Force, bought the stake from Harvard Management Company, which manages Harvard University's US$30.7 billion endowment fund.

Partnering with Harvard Management Company and the New Zealand Superannuation Fund, which manages $20 billion to pre-fund New Zealand's baby boomers' pension, was also attractive for the Canadian fund, he said.

"Timber assets are attractive assets for investors with a long-term horizon such as PSP Investments," Boutet said. "They bring further diversification to the portfolio and are a strong complement to traditional asset classes as timber exhibits significant inflation-hedging characteristics and provides strong risk-adjusted returns."

The pension fund bought a 50 percent stake in a West Canadian timberlands venture in the 2012 financial year, its first investment under a new asset class encompassing farmland and timber. PSP Investment's renewable resources asset class was valued at C$325 million as at March 31, or 0.5 percent of the fund's assets.

The NZ Super Fund lifted its share 1.25 percentage points to 41.25 percent in Harvard Management's sell-down, which will see the Massachusetts-based fund manager retaining a 28.75 percent stake in the forestry company.

Boutet declined to comment on the sum paid, though the NZ Super Fund valued its 40 percent share at $954 million as at June 30, indicating Harvard's previous 60 percent stake was valued at about $1.43 billion.

The Super Fund was keen on lifting its stake in the forest and was looking at ways to buy out Harvard earlier this year, having acquired a minority stake in the timberlands for some $300 million in 2006.

Harvard Management's natural resources portfolio, which accounts for about 13 percent of its assets, consists of timberland, agricultural land and other resource bearing properties. The asset class made a return of 2.4 percent in the year ended June 30, and has delivered an average annual return of 12.7 percent.

Harvard beat out China's Citic to buy the Kaingaroa cutting rights from receivership in 2004. The price was not disclosed but it was believed to be near US$650 million. The same forest was sold by the Crown in 1996 for $2.2 billion.

BusinessDesk.co.nz

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