A drawback of timber investment through syndicates is their lack of liquidity.
London, UK (PRWEB) January 25, 2013
In the opening paragraph, iNVEZZ analyst Frank Quin discusses the advantages and drawbacks of a timber investment, which can be used to diversify a portfolio otherwise biased towards financial securities. Attractive long-term returns, high correlation with inflation and low volatility are all benefits relating to investing in timber. Quin also considers the risks, such as significant price fluctuations, which might undermine the returns on a timber investment.
The iNVEZZ piece lists three distinct ways for a private investor to invest in timber –direct forest acquisition, syndicated forestry investment or buying shares in timber investment companies. Direct forest acquisition requires a significant outlay in the United Kingdom and other developed countries, creating a barrier to entry for smaller investors. The author explains that if a private investor is looking for sizeable income generation, a purchase of at least 100 to 200 acres would be required. In addition there are costs related to husbanding and harvesting trees, restrictions on the quantity of trees which can be harvested and the need for experience in managing a forest.
The second timber investment option described in the iNVEZZ analytical piece is investing through a forestry syndicate. Such syndication opportunities are offered in a number of countries including the United Kingdom, Brazil, Canada and Australia. The advantage of this type of timber investment as explained by Quin is that it involves “limited” partnerships established under local law to afford limited liability, which means the investor’s exposure to the debt of the entire venture is tied to the amount of capital paid in by the investor. A drawback of timber investment through syndicates is their lack of liquidity – if the need arises to extract the invested funds at short notice, there is unlikely to be a ready buyer.
The third and most liquid option for timber investment as described by the author of the iNVEZZ analysis is using exchange-traded securities. The basic choice lies between publicly-traded real estate investment trusts (REITS) or timber-related exchange traded funds (ETFs). “REITs will typically hold pure woodland assets whereas ETFs may hold both physical timber as a commodity, woodland and upstream and downstream forestry-related businesses,” writes Quin.
The author ends the analysis with advice for private investors to not throw caution to the wind and to carefully educate themselves on the risks related to timber investment.
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