TIR Research Library

Chung-Hong Fu: Managing Director Economic Research and Analysis

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As a follow up to the interest generated by “Timberland Investments: A Primer,” Hong has written a new white paper entitled “An Introduction to Global Wood Product Markets and Trade for Timberland Investors.” This paper examines how timber moves up the value chain from a commodity and standing natural resource to a variety of end-use products that are purchased and utilized by individual consumers, businesses and even governments. He follows this analysis with a review of the dynamics that drive the global trade of wood and wood products. He also highlights some of the key macro-economic factors that are expected to influence timber and wood products markets over the coming decade.

Chung-Hong Fu: Managing Director Economic Research and Analysis

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Timberland and farmland are among the real asset categories that have garnered significant attention from investors. What makes an institutional investor choose farmland, timberland, or both? Given their similarities and key investment attributes, it can be challenging for an investor to decide which best fits their needs and interests.

In “Timberland and Farmland Investments: Separating the Bark from the Chaff,” Chung-Hong Fu provides an objective comparative assessment of timberland and farmland as asset classes. He outlines the features that make each of them attractive to investors, provides a brief summary of their historic performance, and offers an evaluation of their respective strengths and weaknesses. Finally, Hong provides a current investment outlook for both farmland and timberland.

Chung-Hong Fu: Managing Director Economic Research and Analysis

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In “A Look at the New NCREIF Timberland Fund and Separate Account Index (TFSAI)”, Chung-Hong Fu, TIR’s Director of Economic Research, provides insight on the new data that is now available to investors with the release of the NCREIF TFSAI Index. Until now, the NCREIF Timberland Property Index (which has been available since 1994) has been the primary measure for private market timberland investment performance. However, the Property Index has some limitations. Among other things, it does not include the impact of fund level fees and leverage because it only tracks the value changes of the individual properties that comprise the index. The Fund Index addresses this and other gaps and is an advancement for investors who are interested in researching the attributes and performance characteristics of the asset class.

Among the important insights obtained from analysis of Fund Index data are: 1) investment management fees account for roughly one percentage point of return across most periods of measurement; 2) the asset class appears to be less efficient than some analysts suggest; 3) smaller funds outperform larger funds, and; 4) separate accounts have tended to outperform commingled accounts over the last decade.

Chung-Hong Fu: Managing Director Economic Research and Analysis

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As global interest in renewable energy grows, a string of new investments have been made in recent years in power and biofuel plants and wood pellet mills that require large quantities of wood fiber. For timberland investors, this emerging market for woody fuel stocks holds the potential to increase income-generating potential of their timberland.

In “The Emerging Bioenergy Sector and Its Evolving Impact on Timberland Investment Markets,” Chung-Hong Fu details the sources of wood bioenergy investment and demand, the development of wood bioenergy in the United States, and the impact of wood bioenergy demand on US timber markets.

Chung-Hong Fu: Managing Director Economic Research and Analysis

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The link between new homebuilding and timberland investment is an obvious one, but the correlation between these two economic sectors is not well understood. How important is new homebuilding to timberland investment success? What has been the impact of the housing downturn on timberland investments? What is the outlook for the housing market?

In the white paper, The Ties That Bind: U.S. Housing Starts and Timberland Investments, Chung-Hong Fu, TIR’s Director of Economic Research, tackles these timely questions.

Chung-Hong Fu: Managing Director Economic Research and Analysis

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It happens at different stages but at some point investors realize that the timberland asset class is not as simple as they initially imagined when they started their research. Much of the complexity comes from the inherent heterogeneity of the properties that are acquired to build a timberland portfolio. This complexity adds to the difficulty in understanding timberland investment fees. The total cost of managing timberland investments includes not only asset management and incentive fees but also the cost of managing the properties. Timberland Investment Management Organizations (TIMOs) maintain different business models which lead to different ways in which property management costs are allocated to investor funds. These costs can eclipse asset management and performance fees and can be more or less borne by managers depending on their business model.

In “Unlocking the Mystery: Understanding Timberland Investment Management Fees”, “Chung Hong Fu” provides insight into the total fees and expenses associate with managing a timberland portfolio and how investors can better understand these costs and the resulting implications on the performance of timberland portfolios.

Chung-Hong Fu: Managing Director Economic Research and Analysis

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The NCREIF Timberland Index is a topic of increasing interest to institutional investors and investment consultants. In the past several years, while the public markets have experienced quite a bit of turbulence, questions have been raised about the veracity of the Index and how the asset class has performed in contrast to the volatility of the broader markets. In this context, the underlying policies and best practices related to data that is contributed to NCREIF, which underpins the Index, have also changed and are continuing to evolve.

In “The NCREIF Index: A Current Perspective”, Chung-Hong Fu provides a comprehensive overview of the Index and discusses some of the recent as well as planned changes that will impact the Index.

Tom Johnson: Managing Director

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An investor’s goal for any asset class is to determine what type of exposure is appropriate given risk and return objectives. Traditionally, style classifications help investors set expectations about how a particular manager or strategy will perform in a given market environment. This determination provides the strategic clarity that is relevant to evaluating prospective managers and to identifying those that, individually or collectively, will be best-suited for meeting the investor’s specific objectives.

Unlike marketable securities such as equities and fixed income, style classifications for timberland investments have proven elusive. In “Timberland Investment Styles: What They Mean for an Investor” Tom Johnson, Managing Director, identifies four distinctive investment styles that are prevalent within the timberland asset class and discusses the relationship between styles and other distinguishing manager characteristics such as: approach to asset allocation, market and transaction size focus, as well as the business model adopted – how they may interrelate and impact diversification as well as impact performance.

Chung-Hong Fu: Managing Director Economic Research and Analysis

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As we head into 2010, what has struck many investment professionals about the recession we have witnessed is how broad and deep the correction has been. Virtually no asset class has been unscathed. In this context, many look to the NCREIF timberland index and note that it appears that the timberland asset class has not been severely impacted by the current correction. What could explain this performance result in the face of the economic headwinds that we have witnessed?

In “Has the Other Shoe Dropped? Assessment of a Market Correction in Timberland Markets”, Chung-Hong Fu explains the relationship between the observed and actual performance of the asset class and discusses what this relationship means for investors.

Chung-Hong Fu: Managing Director Economic Research and Analysis

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Markets for ecosytem services encompass 1) carbon credits; 2) conservation easements; 3) mitigation banking; and 4) recreational leasing. As demographics and public policy continue to shift, timberland bundle of rights which include these option values are growing in importance.

In “Making Trees Greener: Opportunities in Ecosystem Services for Timberland Investors”, Chung-Hong Fu explores the four areas that encompass ecosystem services, discusses the current as well as future economic importance of this facet of timberland investing, and examines ways to capitalize on these opportunities within a timberland investment portfolio.