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Alternative Alternatives: Risk, Returns and Investment Strategy by Sona Blessing

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1

Timberland

1.1 Introduction

Growing a tree isn't rocket science … even so, investing in timberland as an asset class is structurally unique owing to, on the one hand, its inherent biological drivers characterised by their diversity and complexity and, on the other, its interconnectivity to markets via the globalisation of forestry commerce and environmental issues.

Perceived as being obvious, the real risk posed by weather (natural catastrophes) and fire, for instance, have, based on recent studies and contrary to common belief, had only a marginal impact on performance.1 While their occurrence and impact should not be underestimated,2 it is as imperative fully to understand, thoroughly research and recognise the significance of the ‘less obvious’ risk factors such as those posed by, among others, valuations – appraisals (inventory), overpaying for land, timber price led dynamics in the short, medium and long term and the impact of different taxable entities/taxation regimes on returns. Often it has been or is precisely such ‘covert’ risk that tends to be overlooked and can be misunderstood, leading to an unanticipated and significant setback in realised returns.

1.2 Statistics on Investable Timberland

Defining the investable timberland universe is a challenge as:

  • There are variations in data based on how one chooses to define sensitivity led exclusions, such as a forest or an investable forest, whether legal, regulatory or political.
  • Data tends not to be ‘current’, is often ...

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