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Alternatives
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 and steady cash yield potential
Historically has displayed 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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This material, along with any views and opinions expressed within, are presented for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as changing market, economic, political, or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. There is no promise, representation, or warranty (express or implied) as to the past, future, or current accuracy, reliability or completeness of, nor liability for, decisions based on such information, and it should not be relied on as such. This material should not be regarded by the recipients as a substitute for the exercise of their own judgment. It is important to review your investment objectives, risk tolerance and liquidity needs before choosing an investment style or manager.
Important information on risk
Past performance is no guarantee of future results. All investments carry a certain degree of risk, including the possible loss of principal, and there is no assurance that an investment will provide positive performance over any period of time. Certain products and services may not be available to all entities or persons. There is no guarantee that investment objectives will be achieved.
Investors should be aware that alternative investments are speculative, subject to substantial risks including the risks associated with limited liquidity, the potential use of leverage, potential short sales, currency exchange rates, and concentrated investments and may involve complex tax structures and investment strategies. Alternative investments may be illiquid, there may be no liquid secondary market or ready purchasers for such securities, they may not be required to provide periodic pricing or valuation information to investors, there may be delays in distributing tax information to investors, they are not subject to the same regulatory requirements as other types of pooled investment vehicles, and they may be subject to high fees and expenses, which will reduce profits.
Timberland investments are illiquid and their value is dependent on many conditions beyond the control of portfolio managers. Estimates of timber yields associated with timber properties may be inaccurate, and unique varieties of plant materials are integral to the success of timber operations; such material may not always be available in sufficient quantity or quality. Governmental laws, rules and regulations may impact the ability of the timber investments to develop plantations in a profitable manner. Investments will be subject to risks generally associated with the ownership of real estate-related assets and foreign investing, including changes in economic conditions, currency values, environmental risks, the cost of and ability to obtain insurance and risks related to leasing of properties.
Responsible investing incorporates Environmental Social Governance (ESG) factors that may affect exposure to issuers, sectors, industries, limiting the type and number of investment opportunities available, which could result in excluding investments that perform well.
Diversification does not assure a profit or protect against loss.
This information does not constitute investment research, as defined under MiFID.
