What’s a ‘TIMO-light’?

Investors’ appetite for commingled timber funds is ebbing, reckons Robert Hagler of ForestEdge. His company wants to enable smaller institutions to invest directly. We explore how the model works.

As an international portfolio manager at the Regions Timberland Group, and later at BTG Pactual, Robert Hagler looked after sizeable allocations. In some instances, LPs were capable of deploying several hundred million dollars in one go. Hagler, who’s been to nearly 70 countries to carry out his trades, spread the money in markets ranging from Eastern Europe and South Africa to both parts of the Americas.

Now the principal of ForestEdge, a timber investment advisor registered with the SEC, Hagler continues to cover global markets. But he’s looking to target a different public: smaller and mid-cap investors, notably family offices. He’s also putting together a model that’s distinct from traditional timber pooled vehicles.

“Early in this asset class, which is 30 years old, people did commingled funds because they were trying to leverage their exposure to an asset class that was fairly new. Nobody knew how it worked,” he tells Agri Investor. “Technically, I could go out and do a fund – but I don’t. I think the appetite, for most of the mainstream investors, is not in commingled funds. The liquidity is a huge issue.”

Trimming TIMOs

Instead, Hagler wants to help investors looking to invest directly – at a smaller scale. He explains the model. “Let’s say a family office in Europe, or some other place, wanted to own a timberland investment in the US or some other geography that I know. I could set that whole thing up, and then effectively manage that investment in the timber side for them.”

His company would set up a special purpose vehicle in the country where the target assets are. In the US, for example, it could be incorporated in Delaware; the investor would have majority seats on the board, with perhaps one seat for ForestEdge. The company would provide investment management services like budgeting, reporting and financial structuring.

A bit like a Timberland Investment Management Organization – but not quite. “Property managers have now become much more sophisticated in terms of their financial reporting. They can provide asset-level financial reports on a quarterly basis, for example. But a lot of family offices have their own in-house financial reporting, because timberland assets would simply be one piece of their portfolio,” he says.

“They would have to roll it up and look at the tax implications and things like that. So there’s also some services that are provided kind of in the TIMO model that are simply not needed for a smaller investor that invests direct. And that’s the market I would try to target.” He dubs his model “TIMO-light.”

Trees under one roof  

Hagler, who’s in talks with several family offices to explain the concept, reckons the approach suits investors looking to deploy $20 million to $40 million. “It’s bigger than a farm, or bigger than an estate. It’s an industrial-sized property. But it’s at the low end of that, which is what they want because they don’t want to be competing with REITs and institutional investors on the large properties,” he says, citing CatchMark Timber Trust’s $1.4 billion club deal in Texas as an example of the latter mega-transactions.

He says investing direct, with the help of a fiduciary, has several advantages. One is liquidity: “You can pull the plug and get out of that investment in a matter of time. It may be six months or nine months, but it’s a lot faster than a commingled fund.”

The model is also useful, he argues, when investors are looking to combine assets based in different jurisdictions in a single portfolio. “Let’s say they wanted to have something in the US, for market depth and currency and all that kind of thing, but they also wanted to have something in the UK, Eastern Europe or South America. Then you effectively have a portfolio and to have that middle layer of fiduciary Asset Investment Management is very helpful, because they’re basically managing the different pieces of that portfolio.”