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Assessing the effects of adding timberland and farmland into resource-based Sovereign Wealth Fund portfolios

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  • Martinez-Oviedo, Raul
  • Medda, Francesca

Abstract

Sovereign Wealth Funds (SWFs) have been prompted to reconsider their traditional asset allocations given the underperformance of equity markets post-2008 financial crisis and the collapse of commodity prices in recent years. Timberland and farmland investments are increasingly attracting the attention of these funds, seeking higher and more stable returns and means to hedge commodity risk. However, analytical analyses on the effect of these investments to SWFs are still limited. This paper studies the effects of including timber and farmland investments in the strategic asset allocation (SAA) of an oil-based SWF. We model the portfolio of investment of an SWF using Norway's Government Pension Fund Global as a case study, and gathering empirical data for the period Q1 2007–Q1 2016. We examine how allocations in timberland and farmland affect returns, the fund's net growth, and the portfolio exposure to commodity risk. Our results indicate that timber and farmland bring positive effects when supplanting equity investments, improve the return-risk characteristic of the portfolio, and provide hedging again oil risk.

Suggested Citation

  • Martinez-Oviedo, Raul & Medda, Francesca, 2017. "Assessing the effects of adding timberland and farmland into resource-based Sovereign Wealth Fund portfolios," Journal of Economics and Business, Elsevier, vol. 91(C), pages 24-40.
    • Handle: RePEc:eee:jebusi:v:91:y:2017:i:c:p:24-40
    DOI: 10.1016/j.jeconbus.2017.01.002
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    Cited by:

    1. Busby, Gwenlyn M. & Binkley, Clark S. & Chudy, Rafal P., 2020. "Constructing optimal global timberland investment portfolios," Forest Policy and Economics, Elsevier, vol. 111(C).
    2. Mei, Bin, 2019. "Timberland investments in the United States: A review and prospects," Forest Policy and Economics, Elsevier, vol. 109(C).
    3. K.S.Reddy, 2019. "Pot the ball? Sovereign wealth funds’ outward FDI in times of global financial market turbulence: A yield institutions-based view," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 19(4), pages 129-139.
    4. Restrepo, Hector & Zhang, Weiyi & Mei, Bin, 2020. "The time-varying role of timberland in long-term, mixed-asset portfolios under the mean conditional value-at-risk framework," Forest Policy and Economics, Elsevier, vol. 113(C).
    5. Atkinson, Giles & Hamilton, Kirk, 2020. "Sustaining wealth: Simulating a sovereign wealth fund for the UK's oil and gas resources, past and future," Energy Policy, Elsevier, vol. 139(C).
    6. Cubbage, Frederick & Kanieski, Bruno & Rubilar, Rafael & Bussoni, Adriana & Olmos, Virginia Morales & Balmelli, Gustavo & Donagh, Patricio Mac & Lord, Roger & Hernández, Carmelo & Zhang, Pu & Huang, J, 2020. "Global timber investments, 2005 to 2017," Forest Policy and Economics, Elsevier, vol. 112(C).
    7. Megginson, William L. & Gao, Xuechen, 2020. "The state of research on sovereign wealth funds," Global Finance Journal, Elsevier, vol. 44(C).
    8. Atkinson, Giles & Hamilton, Kirk, 2020. "Sustaining wealth: simulating a sovereign wealth fund for the UK’s oil and gas resources, past and future," LSE Research Online Documents on Economics 103564, London School of Economics and Political Science, LSE Library.

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