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ALTERNATIVE INVESTMENTREGISTER
The alternative investment register
includes 83 forestry investments available
to retail investors, including 58 directly
held investments, 4 investments with
a corporate element and 21 collective
investment schemes. This includes
products that are open to investment as
well as those that have recently closed.
The aim of this register is to aid financial
advisers, intermediaries and professional
investors with their whole of market
understanding and awareness of the
forestry sector.
This investment register is limited to
investments that were visible online, those
that are only marketed through closed
channels have therefore not been included.
This register provides a snapshot of the
industry at a point in time (February 2014).
The register is based on information
included in the product marketing
literature and questions posed to product
providers. This included mystery shopping
of product providers and distributors, but
it should be noted that the reliability of the
responses and accuracy of the literature
received was not verified and the register
is based only on the information provided.
DIRECTLY HELD
Directly held forestry investments
include the purchase of an area of land
containing either mature trees or recently
planted saplings. There are many forms of
ownership, including leasehold or freehold
title, tree ownership titles, cropping
rights and timber ownership contracts.
The land is usually managed on behalf
of the investor by a commercial forestry
management company.
Returns are paid from the harvesting of
trees after a number of years. Recently
planted saplings will take a number of
years to grow and mature before they can
be harvested. Investment terms can range
from as little as 2 years for mature trees to
24 years for sapling investments.
Any investment that includes the direct
purchase of land should be considered
highly illiquid and potentially high risk.
This is particularly true with forestry
investments with many located in exotic
locations which may have inadequate land
ownership laws and investor protections.
Direct purchases of land are not regulated
investments and are sold through
unregulated channels.
CORPORATE ELEMENT
Investments with a corporate element
include shares in special purpose vehicles
(SPVs), investing in debt through the issue
of bonds and timber batch purchase
agreements. Some of these structures
can be very complicated and should be
considered particularly esoteric.
Bonds often pay a fixed annual return,
although in some cases the return may
vary depending upon harvest yields and
timber prices.
As there is a corporate element to these
investments, they are not direct asset
purchases and therefore promotion
may be limited to only high net worth,
sophisticated or institutional investors.
COLLECTIVE INVESTMENT
SCHEME
Collective investment schemes pool
investors’ funds in order to purchase
underlying assets or invest in underlying
companies. Forestry funds often invest
into a wide range of assets in order to
diversify risk and returns. They may hold
large areas of forest for long-term returns,
and invest into forestry related companies
such as saw mills or logistics for short-term
dividends. This allows the fund to be more
liquid but still benefit from tree growth and
timber prices.
Investing in this way allows investors
to diversify risk and can often mean
gaining access to the sector with a lower
initial capital outlay. This may also allow
investors to benefit from greater liquidity
and therefore more flexibility should they
want to sell their investment. Forestry
funds should still be considered long-term
investments with the majority of returns
coming from the sale of timber and or land
after a number of years.
Collective investment schemes
include regulated and unregulated
structures such as unit trusts, limited
partnerships, investment trusts, open-
ended investment companies (OEICs)
and unregulated collective investment
schemes (UCIS). They can be operated on
a fixed or open-ended term.
Collective investment schemes must be
run by a authorised provider and can only
be promoted through regulated channels.
As of January this year, the FCA have
restricted the promotion and sale of UCIS
to only high net worth, sophisticated or
institutional investors.
