The Finance of Timberland Investments*

12 07 2010

As a researcher, I enjoy exploring and testing questions related to forest economics, wood bioenergy and timber investments.  Why?  The finance of forestry brings together a globally available, renewable asset with attractive investment characteristics that continues to generate interesting issues for investors.  These include:

  • What are the evolving risk and return characteristics of timberland investments?
  • How do we evaluate marginal, forestry investment decisions as new technologies (such as high performing seedlings) and new markets (such as wood bioenergy) evolve?
  • How do various timberland investment vehicles – from timberlands to timber REITs to forest industry ETFs – affect overall investment portfolios?

An article just published in the New York Times by Tim Gray highlights the continued uncertainties and embedded opportunities in studying these questions (“Seeing the Forest for Its Hedges” in the July 11, 2010 print edition).  And yet this article also advances, without challenge, questionable arguments.  For example, timberlands may or may not hedge inflation (click here for a summary of the research on this topic).  In addition, the quote from timber-bull Jeremy Grantham fails to distinguish between investing in timber versus timberlands.  Timberlands – not timber – have shown a record of rising prices.

The realities of and expertise required to own and manage timberland assets sit apart from the liquidity of publicly-traded vehicles.  The finance of timberland investments continues to teach us how alternate timber-related investments – while anchored to a common asset – provide distinct and self-defined investment performance.

*This theme will be addressed further during the “Applied Forest Finance” and “Valuing Timber REITs” courses on August 4, 2010 in Atlanta, Georgia

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