Timberland Investment Jurisdiction Selection
Timberland investing has a very long history, but has rapidly evolved over the past few decades and became a globally recognized institutional asset class. Just like with any investment, and perhaps even more so, it is vitally important to carefully consider jurisdictional risks.
As the saying goes, “history doesn’t repeat itself, but it often rhymes.” A review of the history of timberland investing yields some insights into how the selection of a jurisdiction has been made in the past and how it is generally still being made. Countless factors are taken into account when investing in a specific asset. At a high level, TRG believes the most relevant to be (1) climate, (2) access to timber markets and supporting infrastructure, (3) country risk, and (4) ESG.
As such, today, some of the top destinations for timberland investments are the US, New Zealand, and Australia, all stable democratic countries with robust institutions, dynamic economies and mature timber markets. New Zealand and Australia’s proximity to the growing Asian market is a further distinctive feature.
Latin American destinations have become increasingly more attractive due to their fantastic biological growth and generally accommodative polices for direct investment in timberland, but full timber market development is still uncertain, and there is room for improvement in these countries’ institutions. We expect the winners in Latin America to be the countries that support foreign investment and can develop the infrastructure needed to attract the development of domestic processing capacity as well as access to the global markets.
Jurisdictions whose timberland investment opportunities are limited to slower growth forests or face risk of being negatively impacted by climate change appear to be the locations least suited to timberland investment at this time. Similarly, many emerging market countries with suitable climates have the potential to become timberland investment jurisdictions, but country risk and lack of developed infrastructure and markets make them attractive only to investors with a high risk tolerance, and/or very niche strategies.
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