Timberland Asset Class
Timber is a renewable resource and the third largest commodity traded in the world. The global demand for timber products is growing due to the increasing population and rising GDP per capita driving timber consumption and demand.
Timber as an asset class provides an attractive return versus risk profile with low volatility (biological growth) and a low correlation to market risk (such as other asset classes like equities and property). Historically, Timber has been positively correlated with inflation providing an inflation hedge and as a commodity-based ‘hard’ asset, it is widely considered to be an effective wealth preservation investment. Furthermore, timber enables the diversification and generation of multiple revenue streams from timber, carbon and other forestry-related products.
Timber has traditionally been supplied from natural resources, however, readily accessible supplies have been depleted through exploitation and the market transition towards sustainable sourcing, management and supply.
Traditional Timberland Returns
Traditional timberland investment returns are driven by three areas: Timber growth, timber prices and land prices. Timber growth translates to an increase in asset value as it matures through increased volume and ability to form higher value-added products. The timber price is due to macroeconomic factors such as population growth, construction activity, interest rates and the overall level of economic activity. Land values are driven by supply-demand dynamics and productivity.
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