22
▲
▲
Limited flexibility in the business model
- reliance on somewhat unproven secondary
markets
▲
▲
Long investment terms
– returns are weighted towards the back end of the investment
or at maturity, making the investment extremely illiquid
▲
▲
Information on costs is very unclear
– land/forestry management, insurance/security,
harvesting and sale of trees
▲
▲
Little risk diversification built into the business model
– only one type of wood,
relying on one revenue stream from the plantation – this relies on the demand from a
single market
▲
▲
Quality
– the sale price of timber can vary depending on its quality. Soil fertility, pests,
diseases and climatic conditions can all dramatically affect returns
▲
▲
Yields
– yields directly affect investors’ returns. Research by CATIE (Centro Agronmico
Tropical de Investigacin y Ensenanza)(1995) on teak plantations in Costa Rica found that teak
growth in perfect growing conditions would be 12 to 18 cubic meters p/ha per year. Many
projects have far higher projections than this
▲
▲
Use of funds
– What does the investor actually own and what are their investment
funds used for? Are there a number of people to be paid out of these funds (Commissions,
Marketing)
▲
▲
Finally fraud
– in some cases, no underlying land was purchased, no accounts were kept
for the companies involved and investors were mislead as to what they were investing in
A number of timber funds and plantation
schemes have caused controversy over
the last 25 years. Several funds based in
Costa Rica, India and the Netherlands went
bankrupt or were marred by scandals and
fraud. In the Netherlands alone at least
seven funds went bankrupt with the loss of
more than 100 million Euros.
A number of these products were launched
back in the early 1990’s, advertising very
optimistic returns and putting a large
amount of money into marketing and
promotion. Investors took advantage of what
were seen as sound investments. However,
the actual performance of these investments
was very poor (Canby and Raditz, 2005).
There have been more recent examples
of poor investments and outright fraud in
the forestry sector. The FCA have issued
alerts advising investors to be very wary
of overseas schemes offering investment
opportunities in trees and other ethical
investments. A previous alert from the FSA
on their website stated that they “have heard
reports of promoters using aggressive, high-
pressure sales tactics, and often claiming
we (the FSA) do not need to authorise
the schemes, as they are not collective
investment schemes (CIS)” (2011).
A prime example is Forestry for Life which
opened in 2009 with offices in the UK, Dubai
and Hong Kong. The company aimed to raise
US$1b by the end of 2011 and US$5b by the
end of 2013. The investment promised to
pay fixed returns of 12% for the first three
years, from the sale of carbon credits. The
company brochure boasted this would be a
“low risk ethical investment opportunity”.
Forestry for Life and a second company, the
Investor Club, claimed to invest money in
teak tree plantations that generated carbon
credits, which would then be traded for profit.
It is claimed that no land was ever purchased
and not a single tree was ever planted.
According to the Crown Prosecution
Service, Forestry for Life ad the Investor
Club were found to be “large-scale Ponzi
schemes” which defrauded investors out
of more than £1.35m over a three-year
period. It is believed only £250,000 was
ever returned to investors.
Bankrupt Funds/Investments
Invested Money (million Euro)
Sintrex/CO2 Invest
Unknown
Global Green
10.8
Eco Brazil
38
Eco-Sure
Unknown
Green Capital
22
United Green
7
Robinia Gold
15
Total
92.8
Source: Scholtens & Spierdijk 2008
Fraudulent Funds/Investments
Invested Money (million Euro)
Ecobel
5.5
Euro Greenmix BV
3
Green Fund Nederland BV
Unknown
Total
8.5
LESSONS FROMFAILED INVESTMENTS
KEYREASONS FORFAILURE
