No, we do not offer a lump-sum full payment option for new issue investments. The main reason why is that forestry is by nature a contributory investment. A crop of trees is planted, intensively tended during the first 10 years (the pruning and thinning) then managed through until harvest over a 25 to 30 year period. The only way the future cash flow requirement to pay for this work can be converted into a lump sum is by ‘guessing’ future inflation, real cost movements relative to inflation, interest and taxation rates. It is not possible to accurately guess these variables over the 25 to 30 year life of a forest.

The consequence of an incorrect lump sum calculation will inevitably disadvantage you, the investor, which is the main reason why Forest Enterprises does not offer this option.

Other reasons against a lump-sum option

Even assuming someone could accurately guess the variables and arrive at a lump sum amount, there are other major reasons against lump sum full payment of your forestry investment.

Shift in Control from You to the Manager

Your strongest negotiating lever is your money. If you have fully paid your investment you have little negotiating power and the Forest Manager (the Manager) is in a strong position. Prudent investment practice should always empower you the investor, not the Manager.

Temptation on the Manager to Spend the Funds Available

With lots of money in the bank during the early years, the Manager might be tempted to spend it on the forest e.g. ‘put in that extra track’, and generally to spend more than anticipated in the original budget. Investors can only restrain the Manager if it has to justify any additional expenditure and this is best achieved when it has to ask you to pay for it.

Pressure on the Manager to Cut Corners

If in the latter years of the investment the remaining funds are insufficient to complete the work originally intended, the Manager will be under extreme pressure to reduce expenditure by cutting corners. Doing so will inevitably compromise forest quality, and consequently investment return. This is not in your best interests.

Locking into a Forest Management Regime

A lump sum calculation can only be attempted if fixed assumptions are made, including forest management regime assumptions. Consequently a change in forestry management to accommodate new and recommended developments that could enhance your forest and your return would probably not be possible. This is also not in your best interests.

Management of the Resulting Cash Fund

Full payment of a substantial future cash flow creates a large cash fund that must be managed professionally, which in itself creates an unnecessary investment risk.