1 / 21

SUSTAINABLE FORESTRY INVESTMENT

SUSTAINABLE FORESTRY INVESTMENT. Cary Wingfield Raditz, CFA. Total Global Forestry Investment. Total investable and leasable global forestlands estimated > 870 million ha Value > US$480 billion Forestry investment growing 20% p.a. for 20 years US$35 billion invested mainly in US

aolani
Download Presentation

SUSTAINABLE FORESTRY INVESTMENT

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. SUSTAINABLE FORESTRY INVESTMENT Cary Wingfield Raditz, CFA

  2. Total Global Forestry Investment • Total investable and leasable global forestlands estimated > 870 million ha • Value > US$480 billion • Forestry investment growing 20% p.a. for 20 years • US$35 billion invested mainly in US • US$20 billion held by institutional investors Cary Wingfield Raditz, CFA

  3. Timber: the Investment Class • Predictable biological growth • Asset growth= forest growth • Inventory=stored on the stump • Strong historical returns • Moderate risk • High returns on risk* • Portfolio diversification characteristics * Sharpe ratio Cary Wingfield Raditz, CFA

  4. Returns & Risk 1973-2002 *Sharpe ratio = (asset return–return on risk free asset) / risk [standard deviation] Cary Wingfield Raditz, CFA

  5. Attributes of Return • Biological tree growth • Timber price changes • Changes in the value of the underlying land asset • Non-timber forest products and services—ancillary cash flows Cary Wingfield Raditz, CFA

  6. Timber Reduces Portfolio Risk Cary Wingfield Raditz, CFA

  7. Investment Suitability of Timber • > 10 years = illiquid • Long-term institutional portfolios • Endowments, foundations, pension funds, insurance companies, high-net worth • Matches maturity of longterm assets to maturity of longterm liabilities • Low correlation to equities and fixed income provides diversification • Certified forestland suitable for socially responsible investors Cary Wingfield Raditz, CFA

  8. Investment Vehicles • Purchase forestland—manage timber assets • Forestry product equities • Forestry product bonds • REITS—real estate investment trusts • TIMOS—Timber Investment Management Organizations • Private equity partnerships Cary Wingfield Raditz, CFA

  9. Environmental Issues • Climate change • Soil and freshwater conservation • Loss of biodiversity • Forest systems play a critical role in managing environmental problems Cary Wingfield Raditz, CFA

  10. Forestland Management Methods • Clear cutting (controversial) • Pure conservation—tax deductible gifts of forestland • Sustainable forestry management—”pure play” • Forestry operations includes processing • Certified forests (FSC)—biodiversity • Non-timber forest products (NTFPs) • Capturing PES cash flows--e.g., CERs • Structured methods—e.g. easements Cary Wingfield Raditz, CFA

  11. Tropical Forestry Investments • Fast growing in tropics (short rotation) • High discount for Emerging Markets risk • Controversial (Equator Principles) • Lessons learned: Mitigate country risk (management, rigorous internal controls, portfolio diversification) • :Factor costs of poor infrastructural • :Neutralize corruption risk • :Coop local community participation in forest management • :Certify forests • :Manage non-timber forest products • :Monitize tradable carbon emissions rights (CERs) Cary Wingfield Raditz, CFA

  12. Payments for Eco-services • Carbon sequestration--CERs • Water use rights—local (New York City) • Biodiversity—FSC certified (Precious Woods) • Eco-tourism (Texas Inland—hunting rights) • Conservation easements (USA e.g., Forest Legacy Trust) • Tradable development rights (USA locally regulated) Cary Wingfield Raditz, CFA

  13. Implications for Investment Valuation • Value = Σ of discounted future cashflows • NTFPs and PES are real options • When exercised: PES provide ancillary cash flows • “Value enhancements” • Reduce illiquidity in afforestation • PES converge private good and public good agenda Cary Wingfield Raditz, CFA

  14. Timber Conservation Strategies • Pure Conservation • Sustainable Harvesting • Creative Structured Solutions • Example: Selling Easements Cary Wingfield Raditz, CFA

  15. Pure Conservation • No return of principal or income • Forestland gift is tax deductible • Appropriate for land having special value or unsuitable for logging • Example: green belts near urban centers, old-growth riparian forests Cary Wingfield Raditz, CFA

  16. Sustainable Harvesting • Land harvested sustainably (< 6% of board ft/year) • Sub-optimal timber returns, but is still solid investment • Short-term positive impact on environment • Either requires very long investment horizon or sale of most of land to capture principal and return on capital Cary Wingfield Raditz, CFA

  17. Structured Solutions • Incorporate PES • Tax sensitive strategies--Easements • Partner with non-profit govt and NGOs (Sierra Club) • Structure for socially responsible investment market Cary Wingfield Raditz, CFA

  18. Selling Easements • Conservation easements • Development easements • Optimal or near optimal investment returns • Fair short term/Good • long term environmental impact • Requires foundation and non-profit funds Cary Wingfield Raditz, CFA

  19. Easement Return and Impact • Benefits: Conserve wildlife habitat, clean watersheds, prevent urban sprawl, preserve valuable forestland • Purchase land with merchantable timber • Agree to environmental easement on the property at beginning • Satisfy the environmental guideline test • Provide investors tax-deductible contributions • Through careful replanting, return the ecosystem to its natural pre-logging state • At end of term, put the land into permanent conservation through a land trust Cary Wingfield Raditz, CFA

  20. Is it Time to Invest? • Opportunities for creative, sustainable solutions • New SRI listings in capital markets • Select opportunities in emerging markets • Environment awareness will increase value of certified wood • New international protocols will increase demand and price of carbon and other PES Cary Wingfield Raditz, CFA

  21. Sources of Information • www.forest-trends.org • Private placement memorandum • Initial public offering prospectus • Hancock Timber Resource Group www.hnrg.com • Rights and Resources www.rightsandresources.org Cary Wingfield Raditz, CFA

More Related