"The value of the wood rises as the trees' circumference increases. This biological growth is completely independent of financial markets."

Bayerische Versorgungskammer is the manager for 12 German public sector and professional pension funds for the Federal State of Bavaria. It manages some €111.9bn in assets, making it the largest German and one of Europe’s largest pension funds. It stands out due to its significant and relatively longstanding investments in timber, which is classed as a standalone asset within its alternatives portfolio.

Kathrin Kalau-Reus is the head of Private Equity, Infrastructure and Timber at Bayerische Versorgungskammer (BVK) where she manages approximately €20bn in assets. She sat down with NZI editor Mona Dohle to discuss why timber should not be conflated with other real assets and how it can act as an inflation hedge.

You have been investing in timber since 2008. Back then, it must have been a rather unusual asset class. What prompted you to invest in timber?

Indeed, when we started investing in timber in 2008, it was an incredibly unusual asset class, and wasn’t really on anyone’s radar. We were somewhat of an outlier. But we have always considered timber to be a standalone asset class right from the start; we have never invested in timber as part of a broader real asset or infrastructure mandate. This is really important to us because we believe that the performance of timber assets can only be correctly assessed as a standalone asset class.

In 2009, we selected our first fund of funds. Back then, we had an advisor, but as we gained confidence in our understanding of the asset class, we decided to move the selection in-house. The initial reason for investing in timber was that we wanted to build an alternatives portfolio and were considering which asset classes, besides private equity and infrastructure, might be available. Timber soon emerged as the most suitable asset class since it appears to have a relatively low correlation to other asset classes and offers a great inflation hedge.

I sometimes joke that timber never really had the chance to prove itself as an inflation hedge until the last two years when inflation was rising. We can now confirm that timber really is an efficient inflation hedge, showing its best performance in 2022.
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Source: longviewnetworks.maglr.com