New Forests: new, diverse timber investment structures abound

New Forests predicts the $100bn institutional investor market could double or even triple in size as the industry needs to double timber production by 2050.

The global timberland investment market has become much more complex and diverse over the past 10 years and will continue to produce new and innovative investment structures as it matures further, according to Australian timber manager New Forests.

In its biennial Timberland Investment Outlook for 2015-2019, New Forests predicts the $100 billion institutional investor market could double or even triple in size as the industry needs to double timber production by 2050 to match demand.

As the US timberland market becomes “largely a secondary market” and Australia and New Zealand reach “the end of their primary market phase for institutional investors”, New Forests suggests that the market will see increasing numbers of specialist managers and increasing investment structure diversity.

Among the more traditional timberland fund and separate account models for timber investors, the firm included vertically-integrated offerings, which control timberland assets along with processing and infrastructure assets, as a structure to watch. Permanent capital vehicles and timberland real estate investment trusts could also increase in popularity, according to the outlook which marks New Forests’ tenth year in the industry.

Increasing investment into emerging market timberland markets is also possible as the industry looks to answer increasing demand from new markets.

“The forestry sector has weathered huge changes in market conditions,” writes David Brand, chief executive of New Forests in a release. “Over the past decade China has become a central driver of timber demand and energy wood pellet trade has emerged as a significant new market. However, there have also been substantial technology-related reductions in demand for newsprint, printing, and writing paper, and the US housing market has seen its largest retraction in over 50 years. Looking forward, New Forests expects near-term timber demand recovery in the US, but in the medium- to long-term most growth in demand for traditional timber products will come from Asia.”

Hancock Timber Resource Group is the biggest timberland investment management organisation (TIMO) by assets under management, according to the report, followed by Campbell Global and Resource Management Services with $11.7 billion, $6.7 billion and $4.5 billion respectively. New Forests is eighth with $2.1 billion, according to data from RISI and New Forests.

Read Timberland Investment Outlook: 2015-2019.