Pension funds increasingly eyeing timberland investments as inflation protection; emerging economies that carry higher risk offer 'tremendous opportunities for gains,' finds Forestry Research Associates
June 21, 2011
– Pension funds are increasingly putting their cash into timberland investments, according to reports in the Financial Times and from forestry investment research and advisory consultancy, Forestry Research Associates (FRA).
FRA claims that commodities are still popular, despite the current volatility prompted by high inflation rates – mainly due to the increased demand for raw materials in India and China. However, risk-averse pension funds have been looking for an asset that offers more stability and some protection against the effects of inflation.
Investment consultant Mercer claimed in recent report on the subject that timberland investment offers “explicit opportunities” as a long-term and sustainable investment for pension funds. Peter Collins, an analysis partner at FRA said, “Investment in forestry usually involves putting money in projects taking place in emerging economies, such as Brazil or Costa Rica. Although these carry with them slightly more risk than some investment in more established economies, they also offer tremendous opportunities for gains.”
“Brazil’s economy went from strength to strength in recent years and lots of people made a lot of money by taking the chance and investing there. Forestry is big business in Brazil and sustainable projects like those offered through Greenwood Management have taken advantage of the growing natural resources market,” added Collins.
The global trade in timber is thought to be worth around one per cent of the global GDP, or $200 billion, according to the UN Food and Agriculture Organization. Mason Browne, the Director of Operations of Global Timber Acquisitions at fund manager Four Winds Capital Management, said that investing in timberland is a good options for those who want to diversify their investment portfolios and spread risk: “It doesn’t trade at the spot price of lumber. It also offers a low correlation with other asset classes and a high correlation with inflation.”
Simon Fox, an alternative investment expert at Mercer, said that another great thing about timberland investment is that the owner has the choice as to when they sell their stock: “With timberland, you can control when you take it to market. Unlike an agricultural commodity, which has to be harvested, with timber you can leave it on the stump.”