Our Forestry Investments
Investment Options
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There are two main ways you can invest in forestry.
You can invest directly into the ownership of the trees (which normally also includes ownership of the land on which the trees are growing), or indirectly through shares in a listed forestry company. We refer to these two options as ‘direct’ and ‘indirect’ investment.
Forest Enterprises’ investments fall into the direct investment category and do include ownership of the land.
New Zealand examples of indirect forestry investments are listed companies like Carter Holt Harvey, Evergreen Forests and Fletcher Forests. Other listed, but non-company, indirect forestry investments include Nuhaka and Opio forests.
Although the direct and indirect investment options share a number of key characteristics, the most important being their sole focus on plantation forestry (mainly Radiata pine), they also have important differences.
Direct forestry investment
Direct forestry investments normally focus on one block of land, comprise a group of investors numbering up to 200 and relate to one rotation of trees. A crop of trees is planted, tended and eventually harvested from the block of land by a manager on the investors’ behalf.
The investors are closely involved with their forest and participate in decision making. They can identify directly with their forest, visit it if they choose, and they know exactly where their money is going and what it is being spent on. Because they are growing one crop rotation there is no income from the forest until harvest, which occurs at the end of the investment. Investors therefore have to fund the cost of the work occurring in their forest each year and do not receive annual dividends.
Indirect forestry investment
In contrast, an investor in an indirect forestry investment owns shares in a company (or similar) that owns a number of forests, typically covering the full forest rotation from planting to harvest. Such investments normally have annual harvest revenue and this is used to finance planting and tending and to pay shareholders' dividends.
Investors therefore invest a lump sum to buy shares and that is the extent of their funding obligation. Investors do not usually become closely involved in the investment and as they are one amongst thousands (including large corporate investors), do not effectively participate in decision making.
Profit and wealth creation
The profit and wealth creation process for each of these investment types is also different. In direct forestry investment, investor capital growth is created as a result of one crop of trees growing from newly planted seedlings to mature trees (little trees becoming big trees!).
The driver of capital growth in indirect forestry investment is quite different. As most of these investments have forests covering the full rotation, the composition of the forest portfolio does not change materially year on year as similar areas are being harvested to those being planted. Capital growth only arises from an increase (or anticipated increase) in the world price for wood.
Both of these investment options have a place in a diversified and balanced investment portfolio.