Key Post Investment in Irish Forestry Funds

[ubiquitous]

Re: Key Post: Investment in Irish Forestry Funds

This is only my opinion but I can't see how anyone could describe the Forestry Funds as "relatively risk free". In fact imho the opposite is the case in that shareholders are so powerless to hold management to account in almost every aspect of the operation.

To answer another query above, the "growth dividend" is not a dividend as such. However the growth of the trees over a 30/40/etc cycle will be expected to produce a capital asset on maturity. This is separate from the short-term returns from premium income that are characteristic of most forestry investments in this country and are missing in this case.

 

[euroDilbert]

Re: Key Post: Investment in Irish Forestry Funds

Responses to both Clubman and ubiquitous :

How do you reckon that it's "relatively risk free" unless you actually mean that the loss of €500 x 2 would represent a small risk to you personally?

On two grounds (remember I said relatively)

(a) My investment was used to buy land (on which trees are being grown - the cost of this coming from subsidies and grants). Therefore, I rate my chances of losing all or even most of my original investment as low. Whether or not I will actually receive the original projected return is a separate question - and there is certainly a greater risk involved there.

(b) As you suggest, even if I did lose it all, it is just one small part of my investments - which I am trying to diversify.

As mentioned before forestry is not necessarily environmentally friendly due to the damage that certain intensive forestry (in particular coniferous plantations) can do to the environment. No investment is ethical if it does not make the charges and operation clear to the investor. Not saying that this is necessarily the case here but worth bearing in mind.

I agree, but then any badly managed company can damage the environment. I just personally think that this one is more likely to be an 'ethical' investment than investing in, say, a cigarette manufacturer.

shareholders are so powerless to hold management to account in almost every aspect of the operation.

I also have BOI shares and, in practice, the same applies (large shareholders obviously can have some influence). However, I accept that the share and voting structure does limit shareholder influence in IFF. As mentioned before, I intend to put this point, and some other raised here, to IFF.

 

[ubiquitous]

Re: Key Post: Investment in Irish Forestry Funds

(a) My investment was used to buy land (on which trees are being grown - the cost of this coming from subsidies and grants). Therefore, I rate my chances of losing all or even most of my original investment as low.

This ignores the fact that the market value of land that has been afforested under the State afforestation schemes is in most cases practically zero - as the State schemes legally compel the landowner to replant the land once the first 30-40+ years growth cycle is complete.

When parcels of afforested lands are put up for sale, the asking price is usually the commercial value of the timber - little or no value is ever attached to the land itself unless there is a particular strategic or development value involved. If there is development value this is diluted by the necessity to refund all grants and premiums to the State on the areas affected and other attendant costs in satisfying regulatory requirements.

(b) As you suggest, even if I did lose it all, it is just one small part of my investments - which I am trying to diversify..

Fair enough, but this point doesn't really impact on the question of whether the Forestry Fund investments are risky or otherwise.

I also have BOI shares and, in practice, the same applies (large shareholders obviously can have some influence).

This isn't true. If management in BOI or any other company underperforms, the shareholders can boot them out, or sell their shares to someone else who can then enforce change. This is impossible in a situation where the shareholders merely have preference shares.

 

[euroDilbert]

Re: Key Post: Investment in Irish Forestry Funds

This isn't true. If management in BOI or any other company underperforms, the shareholders can boot them out, or sell their shares to someone else who can then enforce change. This is impossible in a situation where the shareholders merely have preference shares.

I said in practice. For all practical purposes, I don't believe I can have any influence. Large shareholders and management can e.g. eircom, where I had no influence over the compulsory acquisition of my shares.

Technically, you are correct, but in practice it makes no difference.

 

[PatK]

Re: Key Post: Investment in Irish Forestry Funds

I noticed that the Fifth Forestry Growth Plan Plc is being launched by Irish Forestry Services this April. After researching www.irish-forestry.ie and AAM, I'm in 2 minds as to whether or not this is a good investment. They estimate a return of 8.2% p/a over a 12 year period tax free so that is definitely better than any banks interest rate. However, there is no guarantee forestry investments will stay tax free in the future. I was just wondering what other people's opinions were on this investment since it hasn't been discussed in two years.

 

[markowitzman]

Re: Key Post: Investment in Irish Forestry Funds

i have a fair bit in these funds (8 and 9) and rang during the week to check values etc. accounting values are fairly solid but are based on projections I assume? They said that once the first fund is matured that it will take "some time" for all wood to be sold etc etc. I did not press the issue but this may be something to be aware of.

 

[ubiquitous]

Re: Key Post: Investment in Irish Forestry Funds

i have a fair bit in these funds (8 and 9) and rang during the week to check values etc. accounting values are fairly solid but are based on projections I assume?

Any such interim valuations are meaningless. What will ultimately determine the success or failure of these investments is the price that the timber will realise on ultimate sale. Today's valuations are irrelevant in this regard unless the timber is being sold today.

They said that once the first fund is matured that it will take "some time" for all wood to be sold etc etc. I did not press the issue but this may be something to be aware of.

The problem with investors having only non-voting preference shares rather than ordinary shares is that they have no power whatsoever to influence the management's decisions in relation to the timing of timber and land sales. This dilemma is complicated by the fact that the management and their related parties already hold lucrative management contracts with the funds and could well be in a position to buy the funds' lands or timber from the funds at any stage in the future. Whether the shareholders could expect a good or bad return on such a deal remains to be seen but the fact that their shareholdings are non-voting means that they would be powerless to object to, or block such a deal even if it badly prejudiced their interests.

 

[PMU]

Re: Key Post: Investment in Irish Forestry Funds

[FONT=&quot]You’re basically investing in ‘timber farming’ and not forestry. There’s no value added here; you buy into some land with semi-mature trees on them, sit on your rear end for 12 years, and bet that the value of the timber will have increased significantly in that period. The promoters say this may give you 8% compound return and for all I know it will; but timber has been farmed in Ireland since the mid-19th century, so if the promoters had provided a table of timber prices in that period from which one could have calculated the probability of returns I’d have more confidence in the 8% estimate. AFAIK, Irish timber isn’t of particular high quality and ends up in MDF rather than construction, which limits the upside potential; also unless someone opens up a new MDF plant in Ireland (highly unlikely) you will end up selling to Medite (now owned by Coillte) (i.e. a monopoly purchaser) and will also be in price-competition when selling with other timber farmers. So, if the timber were most likely to end up in MDF, some historical information on MDF prices, demand etc. would also be beneficial. Another risk factor is the location of the stands. A lot of trees were previously planted on ‘marginal lands’, for which the cost of harvesting is expensive. If the promoters buy stands next or close to a road, harvesting costs should not be significant, but if the land is inaccessible, i.e. if roads need to be built etc. this will reduce profit. Personally, I’m a fan of timber as an asset class and have invested in the iShares Timber ETF (WOOD.L) (it’s down about 16% in six months). I intend to increase my investment in timber but will do so via US timber REITS and not via IE timber farms. I don’t think it’s a particularly good investment considering the above risks and the illiquid nature of the shares. The tax advantages may provide you with a moat of safety; I doubt investors will lose money, but there are better timber opportunities.[/FONT]

 

[PatK]

Re: Key Post: Investment in Irish Forestry Funds

Thanks for the replys! I'm leaning towards a small investment in this forestry scheme just to diversify my investments a little. I think the ECB Interest Rates will be going down in the near future, so if 8.2%p/a tax free does happen with this scheme then it will be worth it. I also believe the EU and Irish Government will keep the tax incentives going for the long term as they are trying to be 'greener' and have some oil dependency from the Middle Eastern countries.
However, I don't like not having any vote in management decisions.
It will be interesting to see what investors do eventually receive after their 12 year wait.

 

[extopia]

Re: Key Post: Investment in Irish Forestry Funds

Or indeed after their 30 year wait for those who invested in the first few forestry funds from this company.

 

[mask]

Re: Key Post: Investment in Irish Forestry Funds

Hi PMU
Re: Investing in American ReIT s . I have been looking at RYN And PCC recently and noticed that they have fallen in value over the last year or so . This seems peculiar as I think timber prices have increased over the same time frame. Do you have any ideas as to why this is the case .? What advantages do you see in investing in these funds rather than an ETF .?
I own some forestry and from the calculations I have done I find it very hard to figure out how the Forestry funds being marketed here can possibly make the returns they are predicting.

 

[chufty]

Re: Key Post: Investment in Irish Forestry Funds

I have a few questions I was looking at the Irish Forestry Fund as one of several options. I am completely new to investing and the obvious choice for me is to see a steady return with very little risk.
I wanted to know before I enquire to them directly-

1. What returns had been shown since its start?

2. What data is available to back up the projected returns?

3. What dividends are paid on preference shares?

4. What guarantees are there that the projected returns will be seen?

I would very much appreciate anyones help on this.

 

[ubiquitous]

Re: Key Post: Investment in Irish Forestry Funds

1. What returns had been shown since its start?

Irrelevant as per above.

2. What data is available to back up the projected returns?

none, apart from assumptions that certain % return(s) will be made.

3. What dividends are paid on preference shares?

none

4. What guarantees are there that the projected returns will be seen?

none

 

[chufty]

Re: Key Post: Investment in Irish Forestry Funds

Thanks for the reply its helped me a lot.
could anyone advise me on a fact based forestry investment scheme, that has a history of past performance and is slightly less speculative on the returns?

 

[ubiquitous]

Re: Key Post: Investment in Irish Forestry Funds

The vast majority if forestry investment in this country is by "timber farmers" who plant trees on land that they either already own or buy for this purpose, normally availing of grants to cover the afforestation cost (but not the land cost), and also State & EU-financed income premiums for 15-20 years on the planted land, and waiting 15/20/25/30/?? years for an eventual income from the timber sales.

Because of the long timescales, all expectations in relation to investment returns are purely speculative. Past performance in such cases have absolutely no relationship to future returns, as returns depend as much on the prices that the investors pay for land and/or the opportunity costs thereof if they already own the land, prior to the initial afforestation of the land, as they do in relation to income premiums receivable during the first 15-20 years and eventual timber sales receipts later on.

The economics of the forestry land market mean that non-farmer investors and companies including the forestry funds will get on average a far smaller economic return on such projects than farmers will achieve, as farmer investors get much higher levels of forestry income premiums than non-farmers even though the cost (or opportunity cost) of land is identical for both farmers and non-farmers. The investors in the forestry funds get no such premium income, as this income is swallowed up by "management charges" payable to the fund promoters and others.

In this context, the typical rates quoted by the forestry funds would be regarded by many within the industry as being wildly optimistic If they can achieve 8%+ per annum over 12-30 years, then farmer investors can expect returns substantially higher, maybe double. It is highly doubtful whether this is possible and this level of return would not have been achieved too often in the past.

 

[chufty]

Re: Key Post: Investment in Irish Forestry Funds

Something I just wanted to confirm on that point
(Back pedaling I know) on the Irish forestry fund from what I understand,
If they say that they look to purchase semi-matured forestry land, and the later forestry fund purchases this as pointed out in a previous thread.
If the purchase price of the land is crucial to achieving the desired returns
What happens if the land is sold above market value to the next fund?
This must surely bite into these returns!
Likewise what happens if the land is sold under market value to the next fund?
This means this fund loses some value surely!

This just looks like a very convenient way to rob peter to pay Paul without anyone knowing.

If this is the case I just wondered how easy it would be to make sure that the funds accounts matched up to look like they where either overachieving there returns on one fund or then they can quite easily balance out the next fund!

I would have doubts as to the way the funds are managed and even more so as the shareholders have no right to vote on the way there managed.
This is just a thought and I'm sure that there is nothing in this but as no one has seen a return on this yet, it is certanatley something I would want to look into a lot more if I wanted to invest my money!

 

[extopia]

Re: Key Post: Investment in Irish Forestry Funds

The bottom line is we won't know how these funds are performing until the first of their products matures in 2010 (the first Forestry Investment Plan). If we see a profitable sale of the fund assets, and a reasonable return to the investors, we can breathe easy for now. If we see unreasonably high professional and management fees associated with the closure of the fund, or god forbid a rollover of assets into IFF's other products, then we should worry about the integrity of the projected returns on the company's other funds.

 

[darag]

Re: Key Post: Investment in Irish Forestry Funds

I have a vague memory of hearing of a grey market for these shares. Anyone here participated? Who runs the market? Any prices made public from such deals?

 

[ubiquitous]

Re: Key Post: Investment in Irish Forestry Funds

The bottom line is we won't know how these funds are performing until the first of their products matures in 2010 (the first Forestry Investment Plan). If we see a profitable sale of the fund assets, and a reasonable return to the investors, we can breathe easy for now.

Not particularly. That's a bit like saying that if you generated a big profit from selling a house in 2004 you can expect a similarly big profit from selling in 2008.

 

[extopia]

Re: Key Post: Investment in Irish Forestry Funds

Not particularly. That's a bit like saying that if you generated a big profit from selling a house in 2004 you can expect a similarly big profit from selling in 2008.

That's why I said "for now".