9
INVESTMENT ACTIVITY
Global institutional forestry investment
is estimated to amount to approximately
$50b per year. The market remains
heavily US-based due to the number of
large, professionally managed private
forests located there. But this is changing
as managers’ and investors’ appetite
for alternative asset classes grows and
demand shifts toward Asia and the
southern hemisphere.
Investment is predicted to increase
from investors in Australasia, Asia and
South America over the coming years
as they look for long-term physical
stores of wealth and diversification from
mainstream asset classes.
BUYERS
Investment into forestry has shifted
in recent years away from integrated
timber processing companies (who own
the land and trees, harvest, process and
sell the timber) and is now dominated by
institutional investors including private
equity funds, real estate investment funds,
pension funds and endowment funds. In
2012, the endowment fund of Harvard
University invested $500m in forestry and
carbon credits in New Zealand. Other large
scale US investors include the Yale University
Endowment Fund and the Massachusetts
Pension Reserves Investment Management
Board. US Real Estate Investment Trusts
(REITs) have made a number of large
investments in 2013 with the most publicised
deal amounting to $2.6billion, funded by
newly raised equity and debt.
European pension funds also increased
their exposure to the sector in 2013, with
many planning to double their allocation
to the sector in the next few years as a
means of long-term capital protection.
Investors include the Danish National
Pension Scheme, European Investment
Bank, Ilmarinen Mutual Pension Insurance
Company and Dutch APB Pension Fund.
Forestry typically requires a ten to twenty year
investment horizon and is considered a good
match for the long-termnature of pension
liabilities and endowment requirements.
According to DANA (2011), the number of
timberland owners/investors/managers
participating in the institutional arena has
grown to over 1,000. According to the FAO,
by 2009, 8% of institutional investors held
timberland assets within their portfolios,
up from only 2% in 2003.
SELLERS
The main sellers in the sector have
been major timber producers and land
management companies who have looked
to create liquidity and offload forestry assets
to institutional investors and REITs. Although
the sector is dominated by large-scale
investments, the number of opportunities
available in the sector suggests that retail
investors have been increasingly active as
both buyers and sellers.
NORTH AMERICA
North America continues to dominate
global timber investment, demonstrated by
high-profile transactions which have taken
place this year among US real estate funds
and investment trusts.
Canadian forestry witnessed a resurgence
during 2013, after being badly affected
by the US property market slump and
the global recession. The turnaround
has been led by increased interest from
Asia. In particular, exports to China from
British Columbia increased by 71% in 2013
(compared to 2012). Increased investor
interest in Canadian forestry is predicted
over the next few years.
SOUTH AMERICA
South America has been attracting
increased foreign investment and now
offers a growing number of opportunities
to retail customers for investment into
forestry. This is due to the combination of
rapid economic growth, financial resilience
and changes in government legislation in
many countries across the region.
The Brazilian forestry market has
witnessed increased activity due to newly
formed plantation managers reaping the
benefits of legislation originally intended to
protect native forests, leading to a number
of opportunities to invest in sustainably
managed plantations.
Two high-profile transactions in late 2012
involved the selling of Brazilian forestry
assets amounting to nearly $160million.
Another large transaction in Q3 2013 was the
sale of a 31,000 acre Tierra Verde property in
Northern Uruguay by a US forestry fund.
EMEA
The UK forestry market was extremely
active in 2013 with the highest level of
activity since 2009, and 50% more forestry
property traded than in 2012. Economic
improvements during the year were strongly
supported by forestry investment funds and
High Net Worth Individuals (HNWI) bidding
for good quality forests, driving the average
value per hectare to record levels.
Russia, which has traditionally been the
source of timber for China, saw investment
into its forestry industry shrink by 17.4%
during the first quarter of 2013. This was
largely due to a 25% log export tax brought
in by the government, intended to protect
the domestic industry. Efforts have been
made to create a favourable investment
climate, most notably in a joint project by
The European Bank for Reconstruction
and Development (EBRD) and the FAO. This
appears to have had a positive impact, with
the sale of a 42% stake in a Russian forestry
holding company to a joint Russian-Chinese
private equity fund.
CONCLUSIONS
It is clear that the drop in demand for
timber as a result of the financial crisis had
an impact on investment into this sector.
With the economic recovery starting to
gather momentum in more developed
countries, and continues growth from
developing Asian and South American
economies, investors are now returning
to forestry in large numbers in order to
take advantage of the long-term growth
available in the sector and the security of
owning a physical asset. This investment is
currently being led by private equity, real
estate and pension funds with investment
flowing into North and South American and
a number of European countries.
There is no reason why retail investors
should not be able to access the same
benefits and opportunities as large scale
institutional investors.
“Investment in forestry is dominated by institutional investors including private equity funds, real
estate investment funds, pension funds and endowment funds.”
