Amid the stocks, bonds and real estate portfolios of the investment industry is a low-risk, high-return tactic that is turning heads with gathering speed. Timber investment in sustainable forestry is by no means a new type of investment, but its ecological vices - as well as the fact that the demand for timber has never been higher - is making this asset class an intriguing alternative in a world where traditional ‘paper’ investments are looking increasingly unstable.
Timber investment is no longer reserved for aristocratic and land-owning families. It’s true that timber prices are steadily growing in line with population growth and demand thus making the land on which trees are grown more valuable, but flexible investment management companies such as EcoForests are making timberland investment far more accessible - and appealing - to a whole raft of different individuals.
It may come as a surprise, but those who chose to invest in forests over the past decade have, on average, fared better than others who placed their money in more mainstream investments such as stocks and bonds. In North America last year, eight billion euros was invested in its forests while across the pond, British forests experienced a 400 million euro injection. It’s safe to say that interest and investment is thriving worldwide, and EcoForests is one of the companies at the forefront of an industry gathering recognition on the back of improved global awareness of climate change and sapping natural resources.
The booming renewable energy market and a desire to behave in a more environmentally conscious manner among HNWIs is also driving timber investment towards, and it is emerging as reliably high-return and low-risk option for investors at all levels.
“Our clients are seeing returns of between eight and 20%,” says Michael Ackerman of EcoForests, “most are averaging around 14%. For investors with more patience, the long-term returns are impressive. Those more interested in a quick return can invest short-term, but that can come at a premium. Clients can invest in well-established plantations or consider younger ones that will be commercially viable in 20 years or so. We have a range of diverse investment opportunities that can be adapted to each client’s will. There is also the possibility of purchasing the land on which the trees are grown and we, EcoForests, take a mandate to manage and nourish their property.”
The business concept grew of Michael’s family investments; they have been involved with timberland for over three decades. Now they are acquiring older plantations in South America - Michael was born to parents of European origin in Honduras where he lived until his mid-teens before moving to Canada - and are buying land on which to begin new ones.
Of EcoForests’ 5,000 hectares across Latin America, teak is the most dominant species. These trees are native to southeast Asian countries such as Thailand, Laos and Myanmar, but indigenous stocks are almost entirely depleted, with some nations imposing an 80% export ban.
“Supply is almost nonexistent,” says Michael, “but demand just keeps on rising. Its biggest use is in yachting and other maritime industries - as much as 25km² of teak forest is required just to build the handrails of a cruise liner. Can you imagine what is needed for the decks?”
As Michael explains, the natural qualities of teak make it an extremely popular choice: it is resistant to fire, fungus and rot; it is resistant to corrosion when used with metals; and its natural oils protect it from drying in the sun. But these unique characteristics also mean that there is virtually no substitute for teak.
“As an investor, there’s little risk involved when investing in teak - the trees will always be there (risks for natural disasters are mitigated by insurance policies) and the value of teak itself has increased by up to 8% in the last decade. You don’t need to market it or even seek out buyers either,” he says, “there are people lining up to buy it!”
Teak has been planted, grown and harvested in Costa Rica and Panama, where EcoForests has its plantations, since the 1930s and the hardwood trees currently make up 50% of the company’s forests, with new trees being planted every year. The rest of the plantations are made up of mahogany, grown in Honduras and constituting around 10%, and eucalyptus, which EcoForests grows in Uruguay and Argentina.
“Everything is operated out of Canada,” says Michael. “The country is a pioneer in sustainable forestry managements and its combination of strong and stable banking and regulatory systems are a comfort to many investors, not to mention the tax benefits. For many of EcoForests’ clients, timber investment is something new or an type of investment they haven’t heard much about. Each year we are seeing more and more interest. Our clients come from around the world, but are predominantly in Europe and the Middle East although we also expanding into Asia. At the moment, we have agency offices or agents in London, Italy, Germany, Switzerland, California, Israel and, of course, Monaco.”
To speak to Michael and his team about timberland investment, you can head directly to his website for contact information and the address of EcoForests’ closest bureau.