Traditional Investors interest for forestry investments is on the rise
due to the high returns available and its ability to protect capital and the
flat lining of other more traditional investments classes protect
capital
With the world’s lumber industry beginning to adapt to institutional
capital’s stewarding requirements and the environmental, social and governance
of the sector, more than ever before the sector seems ripe for the picking.
With underlying demand for forest and timberland products continuing to
increase across the world, the growth in the investor marketplace comes as little
surprise. What is a surprise is just how fast investors are flocking in, driven
by major growth for these products in powerhouses such as China despite China’s
recent economic stagnation. Bob Flynn, director, international timber at RISI, told IPE Real Estate: “Even with the recent
slowdown in China’s economy and construction, Chinese demand for wood is still
increasing. China is the major driver of international trade in forest
products.”
Whether investors are growing trees in Europe, North America, or Latin
America, they are often producing wood whose end-market will be in China.
IPE
Real Estate also reported that there was around $1 billion of
institutional capital linked to the timber sector 10 years ago. Indeed, scale
will continue to matter as timber will remain a concentrated marketplace
despite its growth, with the next few years likely to see a wider range of
timber and forest-product strategies being offered by investment managers.
RISI,
a Boston-based forestland research and consulting firm confirmed that the
world’s top 30 timber investment management organizations hold around $58
billion of managed assets between them, discounting the real estate investment
trusts also held by them. Of those, the five biggest firms make up more than
half – 53 per cent – of the total, with the biggest 10 of these organizations
accounting for around 74 per cent of total assets.
In terms of the US market alone, the index from the National Council
of Real Estate Investment Fiduciaries (NCREIF), entitled the
Timberland Fund & Separate Account index, revealed a 0.4 per cent gross
return in the quarter to the end of September 2015. This followed a gross
return of 9.29 per cent over 2014 and 9.76 per cent over the previous three
years. The NCREIF requires funds and accounts to have the vast majority – at
least 95 per cent – of their assets held in US timber as well as timberland,
timber leases, deeds and cutting rights, highlighting the ongoing importance of
the sector.
With interest rates at historic lows, the forestry asset class offers
investors a total return of value gains and land ownership, highlighting the
attraction for investors who have long-term commitments, including pension
funds. Forestry also offers real income growth from crop harvesting. The future demand for forestry products such
as wood pellets looks strong Digital Journal
James Grangier, Ecocrops International spokesman,
said: “Forestry as an asset class is indeed ripe for the picking, with
investors enjoying the multiple returns that come from the investment. From the
long term gains including land values appreciating, to the income growth that
can result from crop harvesting, forestry is increasingly pressing investors’
buttons.”
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