Global Timberland Investment Trends Implications for European Investors - TIMBER-INVEST EUROPE CONFERENCE, LONDON
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Global Timberland Investment Trends
Implications for European Investors
TIMBER-INVEST EUROPE CONFERENCE, LONDON
25 -26 October, 2011
Dennis Neilson
DANA Limited, Rotorua, New Zealand
dana@dana.co.nz
DANA Limited
• Small New Zealand- based company
– International forestry and forest industry consulting
– Publishing
– Increasingly involved with timberland asset
allocation and investment advice
2
Topics Covered
• Global Scale of Timberland and Investments
• Timberland Investment Options
• Some Major Institutional Investment Vehicles
• Location of Institutional Investments
• Non- North American Investment
• Timberland Investment Trends
– Regions, species, some new – future? options
3
Global commercial timberland value is around US$ 300 billion* and
timberland institutional investment is (say) $60 billion -- this might
sound a lot, but not when compared with the total global investment
funds: only around 0.07%
Total Global Investment Funds - end 2009
35
29.5
30
23
25
20
$ Trillion
20
15
10
2.8 3.8
5
0.3 1.6
0.06
0
Inst. TL Commercial Hedge Private SWF Insurance Mutual Pension
TL* Funds Equity Funds Funds Funds
Source: IFSL Estimates, end-2009 * US TIMO TIR, 2011
4
Now – a bewildering array of TL investment
options for institutional and retail investors
• ~ 20 North American based TIMO’s (see next slide)
• 4 USA- based publicly listed T-REITS
– Plum Creek, Weyerhaeuser, Potlatch, Rayonier
• Listed UK vehicles – Phaunos and Cambium
• Listed FP companies – e.g.
– Stora Enso, UPM, Portucel, ENCE, MWV, Arauco, CMPC, Fibria,
Suzano
• [At least there was --?] Listed China Forestry Cos.
(Canada - Hong Kong - China)
5
Continued
• Growing list of specialized Forestry Funds
– Australia, Chile, Brazil, Uruguay
• "Fund of Funds"
– e.g. Stafford (Aust), IWC (Denmark), Flag Capital (USA)
• Growing list of “Forestry Index” Funds
– UK, USA, Switzerland
6
Institutional TL Investment to date has been dominated
by USA Private Equity "Timber Investment Management
Organisations" (TIMOs) including:
• The Forestland Group • GMO RR
• Hancock Timber Resource Group • Timbervest
• The Campbell Group • Lyme Timber
• Wagner Forest Management • Timberland Investment Resources
• Resource Management Services • Global Forest Partners
• Forest Investment Associates • Wells Timberland
• Forest Capital Partners • Greenwood Resources
• Regions Morgan Keegan TL • Pinnacle Forest Investments
• Molpus Woodlands • American Timberland
• EcoTrust
19/7
7
But other (private - direct investment) institutional
investor groups include:
• North America • Europe *
– Brookfield Asset Mgmt. – International Woodlands Company
– Harvard Mgmt. Company – Green Resources
– OTPP – Irish Forestry Fund
– AimCo – Global Solidarity Fund
– B.C. Invest. Mgmt. Corp. – The Forest Company
– Public Sector Pens. Inv. Bd. – Dasos Capital
– FIM Services (UK)
– TIR (Europe)
– New
• Tectona G Capital
• Latifundium Fund
* DANA ITOIR identifies ~40 in UK alone
8
But USA still dominates institutional/financial
timberland investment – will this change?
Yes probably
100%
2006 2009
79% 78%
80%
Percent of Total
60%
40%
17% 14%
20%
4% 6%
0% 3%
0%
USA South Oceania* Other
America
Source: RMK 2010 * Has increased with HTRG 2010 200,000 ha Qld Aust. buy
9
A growing list of non- USA Institutional TL
investment countries
Sw eden
New Zealand
Australia
Finland
Brazil
Uruguay
South Africa
Belize
Chile
Rom ania
Tanzania
Mosam bique
Latvia
Malaysia
Argentina
Nicaragua- Ecuador
Guatem ala- Panam a
Colom bia
0 500 1,000 1,500 2,000
000 Ha
10TL Investment Trends
11Regions – [Some players maybe in earlier]
• 1980s - present: North America
• 1990s - present: Oceania
• 2000s - present: Europe
• 2005 - present: Uruguay
• 2005 - 2010?: Brazil [see Economist Sept 24 – page 48]
• 2005 - present: East Africa
• 2008 - present: Central America
• 2008 - present: Asia
• 2011 - ?: West Africa
12Species - Regimes
• 1980s - present:
– Douglas fir, Southern Yellow Pine, Norway Spruce, Scots
Pine, Sitka Spruce
• 1990s - present:
– Radiata pine
• 2000s - present:
– Eucalyptus pulpwood, some US Sth/Mexican pines
• 2005 - present:
– Teak, Eucalyptus sawlogs, African Mahogany,
• 2010 - present:
– Eucalyptus poles, Euc. Biomass, Poplar biomass
13The UK Timberland investment story – a sad saga of
weak governments and (some) nutty citizens
• Most plantations owned by Government Forestry Commission
• Policy to restrict productive spruce and to re-plant with HWs that
take 100s of years to grow
• At least two unsuccessful attempts to privatise -- latest in 2011
– The Government abandoned its proposal of selling off 85 per
cent of public forests after a public outcry. [It may continue with
15%?]
• August press report about sums up the nuttiness
– Hamsterley Trailblazers say selling forests could create an “obesity
time bomb”.
14Teak
• Was the domain of (sometimes dodgy) retail
schemes in India and Central America
• Still a lot of retail options
• But, an increasing number of institutional
investors are concluding that teak is maybe
one of a very few hardwoods that can
replace "native" Myanmar and Indian teak –
and native forests
• Now a move to large/institutional:
– Floresteca - Brazil (40,000 ha)
– US TIMO GFP - Central America
– US TIMO GMO - Central America
– IWC - Asia
– HMC - Mosambique (and CA?)
– European Pension Funds
– Other TIMOs looking
– Tectona G Capital - a major play in Six Mexican pension funds
Central/Sth America With 9,000 (going on 20,000) ha
15But investors should work with managers who know
the relationships between log quality and price
Myanmar
Ecuador
Ivory Coast
16Eucalyptus – Poles and SL
Tanzania and South Africa – October 2011
17And some other specialist species are coming
out of the “woodwork” -- [just three examples]
• Indian sandalwood
– Major US Endowment Fund and Middle East
Sovereign Wealth Fund into this in Australia
• African mahogany
– US TIMO GMO RR into this in Australia
– Brazil
• Paulownia
– Vanuatu, Nevada, near Berlin in Germany
[Due diligence required on all – maybe double- treble DD on Paulownia
18Planned – claimed biomass demand
developments – every PR company's dream
• "Biomass demand to grow • 31 biomass power stations
>50% in Europe" operating in the UK
• "EU faces biomass shortage
• 39 more in various stages of
planning and construction
without new sources"
• If all approved and built,
biomass demand will increase
from 5 million GMT/yr, to
nearly 50 GMT/yr
• Imported biomass to increase
from 13% to 68%
RSPB: September 2011
RISI, June 2011
19Tree plantation biomass – a new sizzle? – but
with some fish-hooks?
• Africa
– Canadian Buchanan Renewables in Liberia - Rubberwood
– UK based Africa Renewables (2010) in Ghana and Ivory
Coast
– Swiss group Global Wood Holding in Tunisia: 900 million
Euro, (400,000 ac eucs + acacia) ???
– Tanzania, Mosambique, South Africa?
• Europe
– Sweden, Germany, Poland, Hungary, Slovakia -----
– Already institutional money inflows
• Brazil – Replacement of native forest wood for steel
making/soybean drying/electricity
- Suzano US$ 800 million for plantations/pellet plants [late
October press release]
- Phaunos and Cambium Timber Funds, others
20And -- those European emitters who think Africa
will just send all its biomass abroad may have to
re- think a little?
• You know how short of electricity [name your African
country] is when you arrive there and everyone is
using their cell phones as flashlights
• In September, just one country's electricity provider
[South Africa's Eskom] announced plans to replace 10%
of its coal usage with wood biomass in the next 15 years.
That is maybe 14 million GMT of tree biomass per
annum – the same as S.A.'s total harvest in 2011!
• Local CHP plants will spring up all over Africa
21Poland SRC poplar, 16 Months – 6 metres
22Bamboo
• In a 2007 RISI Tree Farm economics study, an Indian bamboo "case study"
gave the highest IRR returns of any of 101 options analysed
– RISI Review update out in Q1 2012
• Various new bamboo initiatives in 2011 – some examples
– New NE Indian clones – high quality species
– UK- based Clenergen (Philippines) and Plantation Capital (6 countries)
– US- based Ecoplanet bamboo in Nicaragua
– US- based Bamboo Global – wants to plant in Mexico for wood pellets to Europe
– South African- based Envirovest Bio-products
• Claims clones with irrigation and fertiliser to grow 150 t/ha/yr (most TL trees grow at 10-50)
• Best of most/all "timber" species at fixing CO2
23Oil Palm – traditionally not considered a tree but --
• 15 million ha now
worldwide and growing
• More and more maturing,
to be pulled out for:
– 200 litres per tree of "wine“
– Biomass
• Indonesia Govt plans to re-
classify oil palm as
"industrial forests" Does this look like a tree?
24Tree- based Carbon Offset Trading
• Sounds sexy and "green" -- but –
• Major market (Europe) refuses to allow trading
• Only one country with Kyoto and a Govt. ETS (NZ)
• To get "credible" voluntary compliance, need to
jump through hoops -- even more than for FSC
• Green Resources A/S is probably the global
pioneer/leader in this field
25What about this REDD+ thing?
• A lot of genuine people are promoting it --- [but a lot of non-
genuine people are wanting to exploit it]
• A least five REDD+ carbon conferences are held for every one
on wood based timberland investments
• But -- a lot of water to go under the bridge yet
• Even over-generous Norway is getting "tetchy"
– Govt will no longer add to its $30 million allocation of a $1.0 billion
"commitment" to Indonesia until governance is sorted out
• For me, it remains a "watch this space" but I may be
persuaded?
26There is always something new to keep us on our toes
– e.g. there is a growing worry about baboon damage
to South African pine plantations -- forest owners must
shoot every single baboon in a troop ---
27-- but we now hear that the baboons are
learning how to fight back --
28TL options and trends -- implications for
European Investors
A plethora of European and USA- based (and other) institutional
investment options
– Direct investment
– Listed TL companies - Indices
– Via US TIMOs
• Increasing issue with finding terminating "co-mingled" funder replacements
– Via European Fund Managers
– Via Fund of Fund Managers
– Traditional countries/regions/species/regimes
– More recent and future options – first mover?
292011 International Timberland Ownership and Investment Review
• Sixth Edition 370 pages
– > 1250 TL Owner/Manager profiles (750 in 2010)
• Introduction
– Table of > 190 transactions 2010 - 2011
• North America
– Almost 300 owner profiles.
• Overseas Countries
– > 750 owners-fund managers profiled in 70
countries
• Pension Funds/Endowments
– > 200 T/L invested/interested investor funds
profiled.
• 20 Interesting Country-Regions
• Climate Change - Tree Based Carbon Trading
• Returns: Recent and Expected
– 49 country-region "case study" examples.
• Conclusions
• Appendix:
– >500 timberland transactions 1996-2009.
• STOP PRESS Chapter
Contact: jan@dana.co.nz
Or go to: www.dana.co.nz
30Thank you for your attention
Questions?
Dennis Neilson
DANA Limited
PO Box 392
Rotorua, New Zealand
dana@dana.co.nzYou can also read
