Investments turn Alaska retirees into farm owners

Rising food prices may be boon for retirement savings

Posted: Friday, June 13, 2008

Soaring food prices may be hammering consumers, but they may be good for the Alaska Retirement Management Board.

The state agency that oversees Alaska's $14 billion retirement savings has been buying up agricultural land to diversify its holdings from traditional stocks and bonds.

That means public employees own everything from Florida orange groves to Napa vineyards in the account that provides retirement benefits for employees ranging from state legislators to city police officers to school teachers.

Thursday in Anchorage, the board heard a report on the expansion of its investment focus on agricultural land, which is moving forward with purchase of a portfolio of 41 agricultural properties worth $229 million, expected to close by the end of the month.

Buying agricultural land is a somewhat unusual investment for a pension fund, but provides important diversification, said Gary Bader, chief investment officer for the board.

"We will be better served by being more diversified," Bader said.

As Alaska's invested savings grow to pay for future retirement costs, the state Department of Revenue's Treasury Division has been working with its investment advisers to find new ways to invest its holdings.

Agricultural holdings are still a small part of the retirement board's portfolio, but is increasing in importance.

The Alaska Permanent Fund, the state's other big investment pool, hasn't made a specific allocation to agriculture, but has been diversifying in other ways, such as new investment in infrastructure projects.

Both the permanent fund and the retirement board have made major real estate investments in an effort to find alternatives to stocks and bonds.

"We definitely have more alternatives than the average pension fund," Bader said.

Helping boost investment profits is the fact that agricultural land does more than provide income, but it has also been going up in value. Last year, value from property appreciation exceed the rental income from the land.

The board hires investment firms with farmland expertise to select and manage the land, similar to what is done with stock fund managers, but it has also broadened the topic of discussion at ARM Board meetings. Thursday, Bader found himself explaining the nuances of water rights law in California to the board.

The state saw the benefit of the diversification in the last year, Bader said, when the agricultural portfolio was a strong performer, increasing by more than 10 percent, at a time when U.S. stocks fell by nearly 10 percent.

"I think those investment returns speak for themselves," Bader said.

"We will be better served by being more diversified," he said.

About 12 percent of the state's pension savings is now invested in real estate.

The farmland holdings are diversified themselves, including holdings in 15 states, with California and then Texas being the largest.

About 80 percent of the newly purchased land is in row crops, such as Midwest cornfields. Permanent crops, such as California pistachios, make up the rest.

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