Forest Investment Strategies
Direct Investments
Direct investments are held in separate accounts, with specific assets owned directly by the investor. In earlier phases, where many acquisitions required multiple hundreds of millions of dollars, diversification requirements made separate accounts infeasible for many. In this new phase, where a higher level of investor engagement will be required and where smaller transactions yield better results, direct investments provide opportunity for greater investor involvement and independence.
Direct investment is R&A’s preferred strategy in today’s environment.
Commingled Funds
Where commingled funds once represented 25% of the total timberland portfolio, they now represent over 60%. While such funds sponsored by integrated managers afford investors less independence than direct investments, they allow for large scale, diversification, and investment access at lower allocation levels. They are thus likely to remain an important vehicle for timberland investment. Knowledgeable due diligence is particularly important with commingled funds as investors have minimal control and low ability to exit before the fund’s terminus. A higher level of investor engagement in the governance of commingled funds is thus required, as well as greater participant solidarity.
Timber REITs
With the conversion of Weyerhaeuser, timber REITs own approximately 40% of the total institutional timberland portfolio. Where value in ownership of timberland, in separate accounts or commingled funds, lies in the market value of timberland itself, value in REITs is determined by the market value of the REIT shares as securities. I.e., investors don’t own timberland so much as derivatives of timberland, the total value of which may be greater or less than the total value of the REIT’s timberlands. While securitization increases liquidity, a REIT’s investment attributes are different from timberland ownership and more highly correlated with stocks. That said, a key determinant of share value in a REIT is Net Asset Value (NAV), which is closely associated with timberland value.
