Idaho’s state Land Board today heard an extensive report from a consulting firm, Callan and Associates, on the asset allocation and governance of the state endowment’s assets, whose earnings largely benefit public schools. Among the findings: Timber land is an excellent investment for Idaho’s endowment, and balances the volatility of the endowment’s financial investments. But Idaho commercial real estate is not. The consultants are recommending “prudent divestment” over time from the endowment’s commercial real estate holdings.

When analyzed on the basis of earnings potential, rather than on land appraisals, timber land currently is 39 percent of the endowment’s assets, the review found. “What you have now is good,” Janet Becker-Wold of Callan and Associates told the Land Board. In fact, financial models would support increasing that to 49 percent, she said, though that might not be practical.  

Grazing land, on the other hand, is a “marginal investment,” Becker-Wold said, with “a fairly low expected rate of return.” She said, “You can see that what you do on grazing, in the scheme of asset allocation, it doesn’t move the needle.” Grazing land is only 2 percent of the endowment’s assets when analyzed on the basis of earnings potential, the Callan review found. “And yet in terms of land holding, it’s very large,” Attorney General Lawrence Wasden noted.

Stocks and bonds are “good complements” to the endowment's land investments, Becker-Wold said, and the endowment’s current asset allocation is “appropriate.”

As far as commercial real estate, the review found that Idaho commercial real estate is not a good investment for the endowment. A case could be made that up to 5 percent of assets could be invested in professionally managed commercial real estate assets – not in Idaho but nationwide or global, the review found, and not property by property. No good case could be made for enlarging the endowment’s current investments into Idaho commercial real estate.

The recommendation for Idaho’s current commercial real estate holdings: “Prudent divestment,” Becker-Wold said. There should be “no fire sales,” she said, and “no hurry to get out of it,” as returns are “actually very good” at this point. But, she said, “From a broad investment perspective, we think a more diversified portfolio makes sense.” The review still is being finalized; the final version is scheduled to be submitted to the Land Board on Nov. 18.