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Forestry Investments - A Non-Correlated Asset Class

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					Investing is forestry has been used as a portfolio diversification and optimisation tool by wealthy
investors for many years, and now many smaller investors are seeking alternative assets capable which
generate returns that do not rely on the performance of volatile financial markets.



In fact many large institutional investors such as pension funds, university endowments and specialist
hedge funds are acquiring productive natural resource real estate such as farms and timber plantations
in an effort to reduce volatility and align portfolio growth with increasing trends in demand for
commodities from an ever-increasing global population. Social and economic growth in China alone is
likely to see demand for raw materials such as food, timber and energy increase exponentially as
millions of people move from rural areas into urbanised cities and require greater inputs of food, energy
and raw materials for infrastructure.



Let's look at some of the key reasons that an investor might consider forestry as part of a diversified
portfolio of investments.



Direct forestry investments involve the acquisition of land assets, either through freehold or leasehold
title. This land may be an existing forest stocked with trees of various species suitable for harvesting in
order to sell as constructions timber, pulp of paper and other associated wood products, or it might be
vacant land with suitable topography, infrastructure, local climate and soil quality ideal for the
establishment of a new forest.



Trees are managed by an experienced forest manager who will arrange the management, harvesting
and replanting of trees at the relevant point in the forest life-cycle, as well as the processing of raw
timber into more valuable downstream products such as sawn lumber which commands a higher price
in the open market. The commercial interests are taken care of by an experienced timber business
professional with the right local contacts required in order to sell the harvested timber. The owner of
the property benefits from the revenue created from the sale of the timber.



This asset class is considered a non-correlated investment because returns are not derived from
financial markets; this means investors can reduce their exposure to volatile equities and reduce the
likelihood of sever financial losses should the markets fall suddenly as witnessed in the most recent
financial crisis.



In fact the financial return to an investment in productive timber properties is derived mostly from the
biological growth of the tree into valuable timber. Each year trees continue to grow in size and therefore
command a higher price in the timber markets regardless of whether financial markets or the global
economy is rising or falling. What's more, the price per unit of timber also increases as demand for
sustainably sourced timber from a growing global population also increases, creating a two-pronged
capital growth strategy, and should timber prices fall (which they do if demand is low), investor may
simply leave their trees to grow for another year, letting the biological growth offset any price
depreciation.



In summary, it is right to point out there are of course risks to forestry investment, but these risks are
quite different to the risks associated with traditional financial assets. Timber properties are physical
tangible land assets that will never depreciate to nothing, and continue to grow in size and value
whatever the economic weather, so might make for an interesting tool for investors concerned about
the state of the global economic recovery and seeking an alternative investment that offers a high
degree of capital security and superior return on investment.



Prospective Investors are advised to seek the counsel of an experienced professional real estate
investment consultant with a track record of sourcing and delivering successful investment projects in
the forestry sector in order to properly understand the risks and opportunities associated with this niche
asset class.



David Garner is a Partner at boutique Real Estate Investment Consultancy specialising in Alternative
Assets including productive natural resource real estate and high yield property assets.

				
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Description: Investing is forestry has been used as a portfolio diversification and optimisation tool by wealthy investors for many years, and now many smaller investors are seeking alternative assets capable which generate returns that do not rely on the performance of volatile financial markets.