TIR Research Library
A cornerstone of TIR’s investment philosophy is its commitment to research. Our proprietary research is incorporated into our investment process and discipline. It is also used to identify and unlock inefficiencies within the asset class. Our team produces research that is pertinent and provides insight into the changing fundamentals of the asset class.
Inflation Risks and Timberland Investments
Chung-Hong Fu: Managing Director Economic Research and Analysis
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The last time annual inflation exceeded 6% was during the Carter administration (1977-1981). It is easy to understand why for some investors, inflation hedging assets have not been top of mind. Over the years, timberland has attracted attention because of its long-term competitive returns, its low correlation with other asset classes, and for some, the wide array of option values for natural capital solutions (e.g., carbon sequestration, water mitigation). In “Inflation Risks and Timberland Investments,” Chung-Hong Fu (“Hong”) revisits timberland’s performance in inflationary environments. Over the last three years, as all asset classes have faced the inflation hedge test, which ones have truly delivered over time?
Thinking Outside the House: How In-Shoring and Infrastructure Spending Can Benefit Timberland Investments
Chung-Hong Fu: Managing Director Economic Research and Analysis
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While housing—specifically housing starts and the repair and remodeling sectors—has traditionally driven timber demand, other industries such as infrastructure development, domestic manufacturing, and wood-based commercial construction are expected to play an increasingly prominent role. In “Thinking Outside the House: How In-Shoring and Infrastructure Spending Can Benefit Timberland Investments” Chung-Hong Fu, PhD, explores key macro trends, including government policy support, investments in domestic manufacturing, and the growing adoption of mass timber in commercial buildings. These trends, coupled with a recovering housing market, suggest a potential 5%-15% increase in lumber demand over the next decade, with sawtimber markets poised to benefit the most.
Timberland Investment Essentials: Fundamentals for Investment Professionals with Real Estate Backgrounds
Chung-Hong Fu: Managing Director Economic Research and Analysis
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Over the past 40 years, the institutional timberland asset class has found its place in various parts of investors’ asset allocations. Its inability to be easily categorized reflects its unique risk and return characteristics, which do not align neatly with any specific peer group. However, in recent years, timberland has increasingly been viewed as part of the broader real asset portfolio, alongside real estate, farmland, and infrastructure. Of these, real estate is typically the largest component and often the starting point for many professionals entering the field. As a result, investors and their advisors often have deeper expertise in real estate, making it their primary reference point when exploring timberland as an investment.
In his latest white paper, Timberland Essentials: Fundamentals for Investment Professionals with Real Estate Backgrounds, Chung-Hong Fu compares real estate and timberland, highlighting the complementary nature of the two asset classes.
A Brighter Outlook for U.S. Housing Over the Next Decade: Four Demographic Trends Timberland Investors Should Consider
Chung-Hong Fu: Managing Director Economic Research and Analysis
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In “A Brighter Outlook for U.S. Housing Over the Next Decade: Four Demographic Trends Timberland Investors Should Consider,” TIR’s Economist, Chung-Hong Fu, discusses four demographic trends that will drive demand for new home construction and wood-based building products, thus positively impacting timberland investors over the next decade. The four trends include: the housing deficit, rebound in population growth, more first-time home buyers, and domestic migration.
Carbon Insetting and Timberland: Investing with Impact
Chung-Hong Fu: Managing Director Economic Research and Analysis
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Forest carbon offsetting is increasingly featured in the media as a strategy for mitigating climate change. Under this concept, trees that timberland owners grow and sequester carbon can be used to offset emissions. The offsets can be bought and sold on regulated or voluntary carbon credit markets. However, as presently structured, these offset programs incur significant transaction costs which can erode more than 25% of the value of the carbon. Recently, investors have moved beyond offsetting to consider Insetting projects – where organizations acquire direct ownership of the timberland and thus gain full control of the quality of the carbon credit and avoid the higher fees and volatility associated with carbon markets. This development has important implications for the larger carbon market, but it also creates significant value creation opportunities for timberland buyers and sellers as this new class of buyer enters the expanding climate solutions marketplace.
In “Carbon Insetting and Timberland: Investing with Impact,” Chung-Hong Fu, PhD, discusses the concept of insetting, the pros and cons of this approach, and the key considerations for investors.
How Timberland Can Protect Against Tail Risk: Thinking Beyond Basic Portfolio Diversification
Chung-Hong Fu: Managing Director Economic Research and Analysis
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As an alternative asset, timberland is valued by investors primarily for its return, diversification (low correlation with other asset classes), and inflation-hedging benefits. Less recognized and appreciated is the asset’s capacity to buffer an investor’s portfolio against “tail risks” — extreme negative market or economic events. In “How Timberland Can Protect Against Tail Risk: Thinking Beyond Basic Portfolio Diversification,” our Economist, Chung-Hong Fu, PhD, highlights three risk-insulating features of timberland that offer investors’ portfolios protection during volatile times.
Virtual Integration Value-Chain Investing in Timberland and Wood Manufacturing Assets
Chung-Hong Fu: Managing Director Economic Research and Analysis
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In 2020, Timberland Investment Resources, LLC (“TIR”) announced the launch of our Mission Forest Products (“MFP”) sawmill project in Corinth, Mississippi. TIR was excited about this project launch because it was based on its investment philosophy of identifying and exploiting marketplace inefficiencies. In this case, the opportunity to build a best-in-class sawmill in one of the lowest-cost wood baskets in the U.S. South (where wood cost is typically 50% or more of the cost of operating a mill), and offered end market access to growing cities and demand centers like Nashville, Memphis, and Huntsville. In addition, MFP had a logistical transportation advantage given its location and access to the Midwest at a time when Canadian exports, which supply roughly 25% of the U.S. lumber supply, have become increasingly constrained.
During some of our discussions with prospective investors, TIR informally advanced the thesis of investing in the best markets for timberland and the weakest markets for manufacturing timberland assets. In his latest white paper, “Virtual Integration Value-Chain Investing in Timberland and Wood Manufacturing Assets,” our Economist, Chung-Hong Fu, Ph.D., builds on this idea with an emphasis on more rigorous research and analysis. He discusses the virtual integration concept and uses historical data to illustrate the rationale and performance implications of different combinations of assets.
Timberland Investing in a Higher Interest Rate Environment
Chung-Hong Fu: Managing Director Economic Research and Analysis
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In his latest white paper, “Timberland Investing in a Higher Rate Environment,” Hong uses data and perspective to examine the timberland asset class and how it behaves in rapidly rising rate environments. Importantly, he examines fixed income alternatives and how timberland is positioned in a portfolio context to complement those and other asset classes.
Forestry-Based Carbon Investments: Navigating a Rapidly Growing Sector
Chung-Hong Fu: Managing Director Economic Research and Analysis
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Spurred by a desire to reduce carbon emissions footprints, many companies have begun purchasing forest carbon offsets. Naturally, this growing market for carbon has led many financial actors to offer products to institutional investors. These products seek to provide a competitive financial return through nature-based carbon-dioxide removal. Forests are an ideal source of such removals and during the last two years we have witnessed the introduction of a wide array of forest-based carbon mitigation offerings. Timberland managers have announced, or are considering offering, funds focused on forest carbon. It is natural to ask whether a carbon-focused forestry investment can offer returns that are superior to traditional timberland investments. In his latest paper, “Forestry-Based Carbon Investments: Navigating a Rapidly Growing Sector,” Chung Hong Fu, addresses this question and explores when it may be appropriate for investors to invest in forest carbon strategies – in lieu of – or combined with – traditional forest assets.
Timberland Investing During the Next Decade: What Can We Expect?
Chung-Hong Fu: Managing Director Economic Research and Analysis
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Since its emergence as an asset class in the early 1980s, timberland has undergone evolution and transformation – with a number of key events and market forces shaping its history and growth. A watershed event for the timberland asset class came with the large-scale divestiture of forest holdings by vertically integrated wood products companies based in the United States during the 1990s and 2000s. Concurrently, globalization of trade, combined with the emergence of Asia as an economic powerhouse, moved the timberland investment sphere beyond the United States to many other parts of the world. Many of these investment regions, including Australia, New Zealand, Chile, and Brazil, were targeted to help serve the increasingly robust appetite for wood that was emerging in the leading Asian economies of Japan, South Korea, and most prominently, China.
As we now look to the future, it is evident that we are on the cusp of a new series of forces, which will further shape the timberland asset class in the coming years. In “Timberland Investing in the Next Decade, What can we Expect,” Chung Hong Fu, TIR’s Director of Economic Research and Analysis, discusses three such forces that are particularly noteworthy.