Key Post Investing directly in forestry as an alterntative to a forestry fund

Brendan Burgess said:
If I buy a piece of land and grow a crop of trees. The value of the land will rise and fall. But the cost of growing the crop is nil. And there is a government premium income for 10 to 15 years. If the price of lumber falls by 50%, I will still get a return on my investment, but just not what I was expecting
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OK, so then if you run the numbers what kind of return are you expecting to get? And how does that stack up against the alternative ways of investing in commodities?

There is a big difference between you and I growing trees and a west of Ireland farmer such as my brother who has got about 2.5 hectares of bad land under trees. And even for him, it is going to represent a small part of his income flows.

And the fact that government subsidies are necessary to encourage people to get involved should serve at least as an orange flag - unlike other situations, the major group of 'investors' in this case have a powerful union to defend their interests and if the farming community's interests and yours ever diverge you can guess which way it will go when it comes to subsidies....

If you objective is to become involved in 'tree farming' then this is a good opportunity, but if your objective is to build an investment portfolio that will generate wealth and income for you in later life, then this is not the way to go about it.
 
Just to clarify the premium payment position. For Soft wood plantations the non-farmer receives the premia for 15 years and the farmer for 20 years.

As far as I know, these premia are not exchangeable. If a non farmer buys the lands and then becomes a farmer he must stick to the non farmer payments scheme.
 
Hi Jim2007

It is important not to loose sight of the advangages of forestry investment. There are of course negatives for some but for most individuals looking for a safe home for money the positives outweigh them. I cannot think of anyone who went broke investing in forestry by purchasing their own woodland but I can think of a few who lost badly by investing in basic commodities. Many pension funds and foreign investors consider forestry to be a safe sound investment and that is without the bonuses that farmers enjoy. It is not for everyone, but if you are looking for a safe long term secure investment then forestry must rank high on the list. As mentioned earlier, it is also an excellent means of passing on assets to your heirs without penal taxation. Perhaps the only obvious drawback is that, like all property, you cannot put it in a bag and flee the country as one can with shares or diamonds. But then we are fortunate to live in a stable and conservative society so hopefully the revolution is a long way off.
 
That is an intersting point about pension funds investing in forestry.

They don't get the farmers' grants.
The tax reliefs are not as valuable to them as they are to the rest of us.

So why do they invest in forestry?

There must be a good article in one of the pension journals "Forestry as an investment option for pension funds"
 
Woodsman said:
Many pension funds and foreign investors consider forestry to be a safe sound investment and that is without the bonuses that farmers enjoy.
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Please provide a reference for this - because in 25 year I've never seen any significant asset allocation to commodities in any of the 1000 or so pension funds I have dealt with and I know for a fact that some countries, Switzerland included, specifically prohibit pension funds from allocating any significant percentage of their funds to commodities or property...
 
Brendan Burgess said:
That is an intersting point about pension funds investing in forestry.
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Here is an interesting US article on asset allocation in pension funds in the US in 2011, unfortunately there appears to be no similar article do for Europe, but in general European asset allocations follow a similar trend although of course the actual instruments held would be different.

Note how low the allocation to property is and the fact the commodities don't even get a line item...

As I already said, I'm very interested to see what pension funds are holding significant holds in woodlands or other commodities for that matter.
 
Jim2007 said:
Please provide a reference for this - because in 25 year I've never seen any significant asset allocation to commodities in any of the 1000 or so pension funds I have dealt with and I know for a fact that some countries, Switzerland included, specifically prohibit pension funds from allocating any significant percentage of their funds to commodities or property...
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CH may prohibit pension funds investing in commodities or property (rather bizarre the latter!) but not IE. Our own National Pensions Reserve Fund Commission invests 4.4.% of its discretionary portfolio in commodities and forestry. See their last annual report . The report is well worth a read and it should be possible for a retail investor to replicate their strategy.
 
Jim2007 said:
As I already said, I'm very interested to see what pension funds are holding significant holds in woodlands or other commodities for that matter.
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Jim, you might be very surprised on the facts on this one. Quite a few large European Pension funds hold sizable acreages of Irish Forestry.

I do think that some of the points you mentioned in relation to property especially and commodities as well are totally inaccurate. Some of the best property assets in Dublin and London are owned by Pension funds.
 
mercman said:
Jim, you might be very surprised on the facts on this one. Quite a few large European Pension funds hold sizable acreages of Irish Forestry.
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OK, so where are the references??? This is the second time some on said this and I'm still waiting to see any documentation on it....
 
PMU said:
CH may prohibit pension funds investing in commodities or property (rather bizarre the latter!) but not IE.
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Give how Irish investors wealth had been decimated by holding large positions in property, it might be time to start looking at facts and not sentiments... (Edit: just reading through the report is looks like NPRF is hold about 7% - 8% in property in their discretionary fund, a little bit high maybe, but certainly not out of whack as what individual investors have been doing)


PMU said:
Our own National Pensions Reserve Fund Commission invests 4.4.% of its discretionary portfolio in commodities and forestry.
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In a large portfolio such as this 4% to 6% is what you'd expect to see and this is in line with what similar funds do... Now if you apply the same asset allocations to your own portfolio and intend to put 50K into forestry then you need to be dealing with a total portfolio of around say 1M at least... If you are in this category fine, it will not be a problem even if it does go pear shaped, but if 50K represents 20%, 50% or even more of your wealth then you need to realise that you are constructing a high risk portfolio and that could have serious financial ramifications...
 
Jim2007 said:
OK, so where are the references??? ...
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I'll get the references, but I have to ask the company that manages them. A portion of them were placed on the market for sale around a dozen years ago and I viewed them.
 
My experience: I applied and was told that migrating geese graze on my land. They don't. I walk the land every day and have never seen a goose except in the butchers window at Christmas.

Next, I had to have a soil test and was told the result was not good for growing trees (I have trees of all the types I wanted to grow, thriving on adjoining land).

The last straw was when I was told that the land would have to be inspected and I would have to pay the expenses of the inspector, including an overnight in the local hotel (I live two-and-a-half hours drive from the inspector's office).

End of project.
 
Gaothfar, you should have and still can, go to one of the specialist forestry companies who will deal with the testing and planting of your land. There are plenty of forestry inspectors working for the Dept travelling around the West. Simply contact the Dept in Wexford and they will give you a list of names and numbers.

One thing that they won't do, is go through a heap of tests and inspections for a small parcel of land. The full rules of establishing a plantation are available on their website or through Teageasc.
 
To further confirm what I suggested in the original post regarding the returns from owning woodland, the following is a synopsis of a piece the ITGA recently published in their monthly newsletter. “Investment Property Database Ltd show a forestry investment return in the UK of 18.3% for 2012. The IPD index is calculated from a sample of private sector coniferous plantations in Britain. The decade to the end of 2012 has seen continuous stellar performance by UK forestry investment with annualized total returns of 23.9%, 17.7% and 16.3% for 3,5 and 10 years respectively and no years of negative returns. This performance should be noted for its superiority over commercial and residential property, equities and gilts in all cases over 3,5 and 10 years respectively.”
See www.ipd.com These figures are way beyond any projections given for investment in a forestry fund. Currently all who purchased woodland in Ireland are enjoying a strong demand for timber and all forecasts confirm the likelihood of this continuing.
For an interesting take on what qualifies a farmer for grant purposes check out [broken link removed]
 
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