Monday, June 18, 2012

"Investing in Timber and Farmland"

I haven't heard that Harvard Management Company is back in the market for timberland.
Their sales, beginning in 2005 were pretty timely and as recently as May of this year they were still in liquidation mode.
From Barron's Penta blog:
With debased currencies seemingly everywhere but in Switzerland headed to the trash heap, the race to convert paper to hard assets that will retain value over time is going on full throttle all across the globe. Perhaps that is why the canny peasant buried deep within Penta’s Brooks Brothers suit is clamoring that I better understand timber and farmland.

So I had a chat with R. Dennis Moon, the Dallas-based managing director of U.S. Trust’s  specialty asset management division. Moon’s unit at U.S. Trust, owned by Bank of America (BAC), doesn’t sell funds with lock-ups, but creates bespoke farm and timber opportunities for clients with fortunes greater than $50 million. The minimum investment is $5 million, most commitments come in $10 million to $20 million tranches, and clients put anything from 2% to 15% of their total portfolio into this Mother Nature pure play.

In total, Moon manages for clients $140 million in farmland, $60 million in timber. But that mix should change soon, he says, as a client in Long Island invests $50 million purely in timberland.

“We’ve seen an uptick in clients wanting hard assets,” says Moon, even though he also agrees “this is not for everybody.” Families that need reserves accessible and don’t like illiquid investments should stay well clear of this wooded path....
...Timber is a little different. Timber’s return has taken a hit because of the housing crisis, producing in recent years a net-cash return of around 2%. But Moon claims that over the long term, when you add in the land appreciation values, the total return for timber is similar to farmland’s low double-digits.

The main difference is that there is no annual cash payout for the first years, as there is in farmland, and investors must be content that during that time their trees are growing at 4% to 8% a year in what Moon calls a “biological return.” Look at it as Mother Nature’s answer to compound interest. When the trees are harvested, returns are realized and amortized over the period of holding....MORE
Although Penta has become our favorite Barron's blog for this story the HT goes to Abnormal Returns