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Investing in timberland
Enduring principles support the fundamental case for timberland investing
Timberland — and the wood fiber it generates — is vital to the global economy, providing a renewable resource for housing, furniture, packaging, tissue, heat and energy. In addition to providing a source of wood fiber, we depend on forests for environmental services like air and water purification, nutrient cycling and climate regulation. For many decades, timberland was owned primarily by governments, wealthy families, and corporate operators. But that all began to change about 50 years ago, creating a timberland investment landscape that continues to evolve and adapt to changing markets, climate and investor preferences.
Rising demand for timberland in the 1980s corresponded with the restructuring of the forest products industry in the U.S., resulting in a shift in timberland ownership from operating companies to financial investors. Timberland investment strategies built compelling track records over the subsequent years, demonstrating timberland’s ability to produce strong, consistent returns through cash yield and capital appreciation as well garnering increasing recognition as a powerful source of climate mitigation and carbon diversification.
We feel the asset class’s unique characteristics provide portfolio-level benefits that make timberland an enduring part of many institutional portfolios and provide a fundamental case for investing in timberland through five key principles:
- Principle 1 | Strong market fundamentals
Investing in timberland is a fundamental way to benefit from growing worldwide demand for wood. As populations expand and become wealthier, their large and growing wood demand provides attractive opportunities for timberland investors in key geographies. - Principle 2 | Attractive returns with a stable cash yield
Preservation of capital in downturns and strong income generation driven by cyclical and structural factors. - Principle 3 | Portfolio diversification
Over the past several decades, U.S. timberland returns have exhibited limited correlation with traditional asset classes. - Principle 4 | A hedge against inflation
Timberland continues to provide investors with a reliable hedge against inflation. - Principle 5 | Quantifiable climate benefits
Timberland’s low carbon intensity and potential to generate verified carbon credits can help investors efficiently achieve climate targets.
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In this paper, we provide an overview of mass timber markets and examine the potential climate benefits of wood-based construction. We begin with an introduction to mass timber products used in building construction. Next, we provide an overview of mass timber production and consumption, with a focus on North American and the E.U. Finally, we conclude with a discussion of what growing markets for mass timber mean for timberland investors.
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