Harvard, Yale
Institutions including pensions and endowments have bought real assets such as farms and timberland for years.
Harvard’s natural resources portfolio has earned an average annual return of about 13 percent since inception in 1997, according to the university’s fiscal 2012 report. Last year the assets gained 2.4 percent. The university sees the asset class as attractive, expecting increasing demand for products such as timber by growing economies, the report said.
Yale’s endowment had 8.3 percent of its assets in natural resources including timber as of June 30, 2012, and that portfolio produced an annualized return of 16 percent over the past decade, according to the university’s report.
The bet on real assets including timber and real estate hasn’t helped returns every year. In 2009, the asset class was Yale’s largest allocation and the investments lost 34 percent, according to the annual report. Yale identified timberland as an attractive investment in the early 1990s, seeing it as a way to diversify, protect against inflation and potentially increase returns.
1980s Collapse
Private bankers and wealth advisers are repackaging the professionals’ strategy for individual investors.
The investments don’t suit everyone, even if they can afford the minimums. The assets can be hard to sell quickly and require regular decisions on issues such as equipment upgrades and harvesting. When the agricultural economy sputters, landlords can lose their tenants.
Farmland values collapsed in the 1980s, driving down rental income derived from the properties, said David Oppedahl, a business economist at the Federal Reserve Bank of Chicago. Rental revenue fell every year from 1983 through 1987 across the region including Illinois, Indiana, Iowa, Michigan and Wisconsin.
‘Dangerously Exposed’