p Forests are fixed assets showing historical and expected annual real rates of return of between 4 and 10%, with relatively limited standard deviation.
p Some 60 to 80 % of forest investment yields originates from biological growth that is stable and measurable.
p World market timber prices are ex-pected to continue to rise in real terms by 1 or 2% per year as a result of glo-bal limited supply and increasing de-mand. Growing environmental consciousness and intensified global trade and growth are essential determinants of this.
p Logging can be expedited or postponed for up to about 10 years, which can optimise felling in relation to world market price trends.
p Forests are long-term investments, the term of which equals that of life and pension liabilities.
p From a portfolio point of view, forests have a low or negative yield correlation compared with other traditional forms of assets which, related to the relative yield and volatility characteristics of forests, means that the overall volatility of institutional portfolios can be reduced in relation to a giv-en yield requirement or, alternatively, that the return on the investment, even where forests constitute a relatively modest share of the total portfolio.
p Forests is a relatively new type of asset for institutional investors, who presently own less than 1% of the world’s cultivated woodland. Considering the global growth and international spread of institutional assets, and the worldwide presence of institutional investors as bond and equities and real property during recent years, the relative risk premium of forestry investment seems favourable.
p Professional forest management can essentially contribute to increasing returns. This applies to identifying and purchasing forests, to high-technology operation and multiple utilisation, logging times and the possible sale of forests.
p The principal risks of investing in forests as a form of asset do not noticeably differ from other portfolio investments, including in particular investments in unlisted shares (private equity/venture capital). The risks can be considerably reduced by diversification, both geographically and in terms of tree species and by modern forest management.
This briefing has been prepared for in-stitutional investors by the Internation-al Woodland Company in Copenhagen