TIR Research Library

Chung-Hong Fu: Managing Director Economic Research and Analysis

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In the midst of the current financial crisis and in a climate of
deteriorating returns, only a small handful of investment categories have maintained positive performance. How has timberland fared in the
wake of this turmoil? More importantly, how will it perform over the coming months as we continue to weather the storm and await brighter
economic news?

These are the questions that Chung-Hong Fu tackles in his latest white paper, Timberland in the Eye of the Storm: The Short and Long-Term Outlook for Timberland in Today’s Economic Environment.

Chung-Hong Fu: Managing Director Economic Research and Analysis

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In 2004, Chung-Hong Fu, TIR’s Director of Economic Research and Analysis, wrote what is still the most comprehensive and complete paper examining whether timberland could be considered as a hedge against inflation. Dr. Fu has updated that original paper to include more current data and has re-released this paper, “Timberland as an Inflation Hedge”.

Chung-Hong Fu: Managing Director Economic Research and Analysis

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The size of the global timberland investment market has historically been difficult to determine because of the private nature of timberland transactions and the lack of reliable, public data. On a regular basis though, the relative size of the marketplace has been used by investors, their advisors and managers as an argument for or against the viability of the asset class, different investment regions or particular investment strategies.

In this paper, a component based methodology is used to answer the elusive question “What is the size of the global timberland investment marketplace?”. Three main markets are identified: the Established, the Broad and the Emerging Markets, along with the estimated market value of each category. In addition, market size estimates are provided for the countries and regions that comprise each segment.

Chung-Hong Fu: Managing Director Economic Research and Analysis

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In 2004, Chung-Hong Fu, PhD published a white paper entitled “Timberland as an Inflation Hedge”. In this paper, the characteristics and historical return histories of timberland were evaluated to assess the effectiveness of timberland as an inflation hedge. This most recent installment, “Comparing Timberland with Other Inflation Hedges”, builds upon this discussion and explores how timberland compares to other asset classes typically considered inflation hedges (e.g., energy).

Chris Curth: Managing Director Real Estate
Chung-Hong Fu: Managing Director Economic Research and Analysis

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Increasing land values within timberland portfolios have received unprecedented attention in the past few years. In many instances, investors recognize that land values are not appreciating because of the value for timber production, but rather because the land has transitioned to some “higher and better use”, or HBU. Although we have witnessed debates about the risk and return characteristics associated with HBU within these portfolios, the reality is that HBU has been a part of timberland investing — long before timberland investing was established as an institutional investment asset class in the early 1980s. New entrants and new investors lack the historical context of demographic changes and trading activity in timberland markets over time, which in part explains the lack of a clear understanding of the land appreciation phenomenon. Demographics are not often associated with timberland investing, but in reality, demographic changes in historical timber growing regions explain land value increases as some properties experience conversion of timberland to higher and better uses.

In “The Emergence of HBU in Timberland Investments: New Opportunities, New Strategies”, the authors explore the concept of HBU within a timberland portfolio, beginning with an academic approach to the subject and ending with “real world” examples to illustrate the concepts in more practical terms.

Tom Johnson: Managing Director Client Relationship Management
Chung-Hong Fu: Managing Director Economic Research and Analysis

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“Survey of Leading Business Models of Timberland Investment Managers” explores the history of the asset class and the development of the four primary business models that exist within the industry. The pros and cons of the different approaches are examined and key distinctions of the different business models are highlighted. While our firm has a strong philosophical bias about the business model it has adopted, this paper has been developed to provide foundational knowledge of the different models so investors and consultants can appreciate both the importance as well as the complexity and differences of the models that are prevalent within our industry.

Chung-Hong Fu: Managing Director Economic Research and Analysis

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In this latest installment “Collection of Short Topics on Timberland Investment”, Fu takes a fresh look at several questions that investors regularly ask. These include:

• What are the key risks of investing in timberland?
• What is the difference between investing in the U.S. versus overseas?
• Does the size of the timberland transaction affect return expectations?
• What are the different businesses models that timberland manager’s use?
• Will diversification across different regions improve risk adjusted returns?

Chung-Hong Fu: Managing Director Economic Research and Analysis

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As with many areas of the timberland asset class, what appear to be simple, logical relationships are not as straightforward as they may seem. In “Timberland Returns and the Housing Cycle – Demystifying the Link”, Fu discusses timberland investments and how housing starts have historically impacted timberland returns.

Chung-Hong Fu: Managing Director Economic Research and Analysis

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For those that have thoroughly investigated the timberland asset class, the inevitable dichotomy becomes apparent: understanding that trees grow and become more valuable is simple; understanding what really drives risk and return for the asset class is not so easy. “Seeking Timberland Alpha” explores the inefficiencies within the asset class, why investors cannot expect to buy into the asset class to obtain NCREIF index type returns, and how alpha can be produced in timberland.

Chung-Hong Fu: Managing Director Economic Research and Analysis

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With the reduction and potential removal of the Canadian softwood lumber tariffs and the growth of mill capacity overseas, people have asked about the future of the US forest products industry and its impact on US timberland. “Outlook for US Timberland in a Global Marketplace” explores this question by evaluating the economic factors that will influence the US forest products industry and how these factors will lead to the long-term viability of timberland investments in the US.