How Timberland, Agriculture Can Fit Into Asset Owner Portfolios

Agriculture, timberland and other real-asset-based and natural resource investments can serve as an attractive addition to allocator portfolios. Investors in these asset classes note their fixed-income-like quality, diversification benefits and capital preservation.  

“Our investors are looking for real assets, which bring with them a return which has very low volatility,” says Martin Davies, head of Nuveen Natural Capital. “Whatever happens in the economic cycle, you’ve got consistent returns being delivered, you’ve got income return, which can be generated from growing crops, selling them … and you’ve got capital appreciation of land.” 

The benefits of timberland, for example, according to Nuveen, include a lack of correlation with the capital markets, an ability to be an inflation hedge and the provision of a steady income return. For allocators with sustainability initiatives, the asset class can also provide the benefit of portfolio diversification and act as a natural offset to carbon emissions, including by generating carbon credits that can be sold. Farmland and crops also enjoy similar benefits. 

“Permanent crops play a very similar role to timberland in a portfolio,” says Tom Bratkovich, CIO of DCA Family Office. “They’re long-duration, cash-flowing real assets with low correlation to traditional markets. They offer durable income, inflation protection and tangible downside protection because the underlying land and capital development projects holds intrinsic value.” 

Nuveen’s 2025 “EQuilibrium” report, which presents the thoughts of its annual institutional asset allocator survey, found that 11% of survey respondents said they plan to increase their allocations both to farmland and timberland, while 26% and 27%, respectively, said they plan to maintain their allocations. 

Only 9% of allocators surveyed said they would decrease their allocations to farmland and timberland, and the same number of investors said they plan to decrease their allocations to private credit, private equity and commodities. The survey found that more than half of responding investors did not invest or did not plan to invest in either farmland or timberland at 54% and 53%, respectively, the highest levels of all private asset classes.  

“Nature-related investing is still a developing area, with many allocators in the process of educating themselves and building their understanding,” the report stated.  

A 2024 paper from Meketa Investment Group noted the natural resources asset class represented the smallest segment of major alternative investment asset classes, accounting for 3.1% of private markets on average, by assets under management. As of the second quarter of 2024, Nuveen estimated $123 billion in institutional capital invested in timberland globally.  

Diversification Plays a Role  

These assets are susceptible to natural disasters and other risks, but investors note diversification within the asset class can be a strong hedge against all types of risks.  

“Of course, both permanent crops and timberland also carry risks tied to weather variability, biological factors and shifting market dynamics, which can materially affect long-term returns,” Bratkovich says.  

The only way to deal with risks that are inherent in the asset class is by diversifying, according to Davies. 

“We’re invested in 11 countries globally across 2.2 million acres of farmland, we have 60 different crop types growing and, across about 800,000 acres of forestry, 25 different tree species, so we have a big investible universe that is available to us with our global platform,” Davies says. 

For example, Nuveen hedges against fire risk in its vineyard investments across California by owning properties in Napa, Sonoma and Monterey Counties, the cities of Paso Robles and Santa Barbara, and the state’s Central Valley.  

“What we’re doing in California is: We recognize that wildfire is a risk, [as is] smoke taint of grapes,” Davies says. “So we diversify by the location within California, [and] we diversify by the varietal.”  

This means growing various types of grapes with their own, unique characteristics: “We have chardonnay, we have pinot noir, we have cabernet sauvignon, we have zinfandel, we have merlot, we have gewurztraminer, we have sauvignon blanc,” Davies says.  

“Pinot noir is a … very-thin skinned grape, so it’s very, very susceptible to smoke taint, whereas cabernet sauvignon is a thicker-skinned grape, which doesn’t tend to have quite the susceptibility to smoke taint,” Davies says. “Asset selection, diversification come into play, but on the climate risk side of things, it [involves] trying to use the most sophisticated climate modeling to understand what the climate trajectory of things, and not just in general terms, but down to the impact on individual crop type and, in some instances, down to the individual varietal of an individual crop type.” 

Fitting Agriculture, Timber in a Portfolio  

Investors can get exposure to natural resources across various illiquid asset classes or strategies, from private equity investors to dedicated real asset and timberland managers. Different allocators position these assets differently in their portfolio according to their mandates.  

“We have a global footprint of investors, and it fits in different situations for different investors,” Davies says. “Some investors have a dedicated natural capital allocation, which could be up to 2% of the total assets that they’re managing. Some will put natural capital alongside real estate as a diversifier for real estate. … If you look at what’s happened to real estate in general terms over the last couple of years, there’s been a significant drawdown in value, so if you’ve got natural capital as part of a portfolio alongside real estate, you’re not quite [as] susceptible to that markdown in value.” 

Davies notes that allocators also take a wide range of approaches to the asset class and where it fits into their portfolio, but the core characteristics of timberland and farmland—low correlation, low volatility and inflation hedging—can fit any investors.  

For families and institutions with multi-generational mandates, permanent crops align well with the objective of preserving wealth in assets that compound value over decades, according to Bratkovich.  

The $115 billion Massachusetts Pension Reserves Investment Management allocates 3% of its portfolio to timberland, as of June 30, 2024. Canada’s $217 billion Public Sector Pension Investment Board manages $13 billion in natural resources assets, as of March 31. 

Asset managers like Brazil’s BTG Pactual, Nuveen Natural Capital, J.P. Morgan’s Campbell Global, Macquarie Asset Management, AgIS Capital and PGIM Real Estate are among those managing timberland and farmland for institutional investors.  

Technology Brings Improvements to Agriculture  

Technological advancements have long been used to increase agricultural yields, and they can, potentially, pass those benefits on to investors.  

Michelle Boquiren Urben, managing partner at venture capital manager the Synergos Fund, which invests in agricultural technology, notes that institutional capital investments in the sector have not been substantial. 

“Many startup companies in the agro-tech space have not received the follow-on rounds [or found the] funding that they needed,” Urben says. Synergos aims to provide capital to such companies.  

For example, one of Synergos’ portfolio companies, Opti-Harvest, which makes light filtration panels for crops, touts that its panels can increase the speed of growth of vineyards by 20% to 30%. The technology has also shown a 20% reduction in labor and other input costs—in some trials, water usage was reduced by 75%.  

“They’re able to improve the speed of growth of specialty crops and, also, the resulting quality of crops [that] are produced,” Urben says. 

Another one of Synergos’ portfolio companies, Agrology, uses sensors to monitor soil health, carbon data and other crop-related data. 

“Technology is absolutely improving our yields for these crops, whether they are specialty or grains,” Urben says.