13
of 8-10 years and first harvests from as
early as year 3. Minimum investments
can also be substantially less than those
required for hardwood. Despite cheaper
market prices, providers still quote
high return figures similar to those of
hardwood. However, as is the case across
the forestry investment market, projected
yields are based on future prices which
are very difficult to accurately predict.
GRASS
Bamboo is classed as a species of grass
rather than wood. Often hailed as the
‘Timber of the 21st Century’, demand and
interest around bamboo has markedly
increased due to its durability and versatility
as a raw material. New technologies have
allowed bamboo to compete effectively with
other wood products, with an expanding
list of applications including construction,
furniture, flooring and textiles.
Large temperate bamboos, some of
which can grow to over 30m in height, are
native to Asia and Central China but can
now be found in many warm temperate
areas around the world. Plantations
for bamboo investment are located
predominantly in Thailand but have also
been established in Sri Lanka, Australia,
Nicaragua and South Africa.
Bamboo can reach its full height in just
one year, as opposed to the 20-40 years it
can take some hardwoods to mature. As a
result, bamboo can create 20 times more
timber per hectare than trees. For investors,
this means that returns on Bamboo come
earlier and with more frequency, with
returns being paid on an annual basis from
the second year. Minimum investments are
also much lower, but bamboo should still be
considered a long-term investment. Returns
are variable and providers’ projections
reflect the rest of the forestry investment
market, predicting returns of 7% to as high
as 55% per annum.
SAPLING VS. STANDING WOOD
Forestry investment products fall into
the two categories of sapling or standing
wood, each with differing terms and
forecasted returns.
Sapling investments span the entire
growth-cycle of the trees and can run for
up to 24 years. In addition, returns are paid
once trees are large enough to be thinned,
which is not usually until 8-10 years after
the trees are planted. These investments
tend to require a low minimum investment
of between £5,000 and £15,000. Sapling
investments offer higher potential returns
than standing wood, but are generally
over a much longer time frame. Higher
returns are achieved as the investor will
often purchase a larger number of trees
which will grow and increase in value over a
number of years.
Standing wood investments, by contrast,
offer the opportunity to purchase trees
which are already established. This means
that investment terms can be much
shorter, from 3-10 years, and with returns
achieved from as early as year 3. But as
these trees are more expensive, minimum
investments usually range from £20,000
to £50,000. Returns are also reduced, with
forecasted returns of up to 300%.
MARKETING & DISTRIBUTION
The investments available in this sector are
generally marketed through unregulated
sales networks. A few asset management
and investment companies also distribute
forestry investment products to retail
investors. However, most forestry
opportunities are marketed online directly
by the product provider.
Investments are advertised in glossy
brochures which can be heavy on visual
imagery of the plantations, but provide
varying levels of detail on the project
specifics. Most lead with impressive return
figures and extensive discussions of the
macro case for forestry investments,
along with the uses and demand for the
particular type of trees being grown. Some
marketing goes into greater detail on how
projected returns are calculated, referring
to estimations of important variables
including wood volume per tree, species
historical growth rates and transportation
costs, however, it still remains very difficult
to accurately assess the potential risks and
returns from the marketing literature alone.
It can be difficult to identify all of the
counterparties involved in a project. Not all
providers state the management company
explicitly in their brochures or provide a
profile of their expertise and track record.
There is also a lack of information on risk
factors. Forestry projects are exposed to
a number of risks including fire, flooding,
disease, illegal logging and theft, but not
many brochures go into sufficient detail
about what plans are in place to manage
these risks and whether trees are insured
against them.
DRIVERS BEHIND RETURNS
Investment returns are almost exclusively
derived from the price achieved from
harvesting and selling the trees or timber,
some include the capital appreciation of
the land where the trees are grown and
others include incremental and diversified
revenue streams.
TREE GROWTH
Mature forests will appreciate in value over
time as larger trees can be processed into
higher value timber products to be used in
construction.
TIMBER PRICES
The actual yield at the time of harvest will
depend on the market price for timber
which, in turn, is affected by demand.
Careful timing of harvesting can allow
patient investors to boost overall returns
by taking advantage of rising timber prices.
LAND VALUES
Forestry is an asset-backed investment and
changes in land values can impact overall
returns. There has been strong growth in land
prices in recent years with investors willing to
pay a premium for well-located plantations.
ADDITIONAL INCOME STREAMS
Beyond returns from timber growth and
underlying land prices, the land itself
provides opportunities for owners to
develop additional income streams. For
example, it may be possible to host leisure
or sporting activities on the land, or gain
permission for residential development. In
other cases there may be the opportunity
MAINTREE
CATEGORIES:
HARDWOOD
SOFTWOOD
7
GRASS
