FREQUENTLY ASKED QUESTIONS
Why Invest In Timber?
Where Are the Investment Opportunities?
What Are The Issues?
When Should I Invest?
Q. Why is timber a desirable asset class?
A. Timber is a desirable asset class for several reasons. First, timberland has historically generated excellent returns. Second, timberland historically has a low correlation with other major asset classes, therefore, providing portfolio diversification. Third, timberland returns have been positively correlated to the rate of inflation, which creates a hedge for the portfolio. Finally, including timberland in a diversified portfolio can increase total return at commensurate levels of risk, also known as achieving a more "efficient frontier".
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Q. Why is timber well-suited for institutional investors?
A. Institutional investors are desirable owners of timberland for a number of reasons. Primarily, institutional investors are capable of funding larger transactions and are typically longer-term investors. These attributes uniquely suit timberland ownership. Also, institutional investors are more flexible with harvest levels based on log prices. Notably, the institutional investor is not motivated by mill requirements.
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Q. How are timberland investment returns generated?
A. Acquisition price, active management, biological growth, price trends, and timberland value changes generate timberland returns.
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Q. What countries have the majority of world timberland supply?
A. The Chart below shows the total timberland supply around the globe. The United States accounts for only 8% of global forest reserves, but 27% of total global production. This is because the United States has some of the best tree-growing land to be found anywhere in the world. On a per-acre basis, net annual growth in the United States is 47 cubic feet compared with 37 cubic feet in Canada and just 19 cubic feet it RussiA. U.S. commercial timberland is concentrated in the Northwest, South and Northeast regions of the nation.
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Q. Who are the leading world producers of wood
A. The United States is the world’s largest producer of softwood lumber, followed by Canada, Japan (from imported logs), Russia and Germany. We are also the largest producer of hardwood lumber, softwood plywood and composite panels. It takes approximately 14,500 board feet of lumber and 15,000 square feet of panel products to build an average single-family home today.
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Q. How much timberland exists in the United States and who owns it?
A. Two-thirds of the United States forestland, (about 504 million acres) are classified as “timberland” i.e. forestland capable of growing 20 cubic feet of commercial wood per acre per year. The annual growth of America’s commercial forests exceeds harvests by 47 percent each year. Of the 504 million acres of commercial timberland in the U.S., the Forest Products industry owns approximately 70 million acres, federal and state governments own approximately 140 million acres and private individuals own the remaining 280 million acres. Over the last 15 years, a fundamental change has occurred in the ownership of a significant part of these commercial timberlands. Institutional investors, such as public and private pension funds, endowments, foundations and high net-worth individuals, are purchasing large tracts of timberlands from these forest products companies, and sell the logs harvested from these lands on the open market.
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Q. What are the major U. S. regions for timberland investing?
A. The major timberland regions in the United States include the West, Southeast, and Northeast. Additionally, the National Council of Real Estate Investment Fiduciaries (NCREIF) Timberland Index is separated into these three distinct regions.
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Q. What type of tree grows in each major region of the United States?
A. Within each region of the United States, distinct species occur. Western timberlands are primarily Douglas-fir and western hemlock. Southern timberlands are primarily loblolly pine. Northeastern timberlands are primarily spruce, fir, and hardwood. Species will vary relative to the specific timberland property.
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Q. What are the primary end-use products in each major region of the United States?
A. Lumber is the primary end-use product from logs processed in the West. Approximately 70% of the logs produced in the West are used to produce lumber and plywood products. The Northeast is the primary producing region for high quality furniture and other finishing work. In the Southeast, approximately 42% of the logs are used to produce lumber and plywood products and 36% are used to produce pulp and paper products.
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Q. What risks are involved in timberland investing?
A. The risks associated with timberland investments can be classified into two major categories: physical risks and economic risks. Physical risks include natural disasters, pest infestation, disease, animal damage, and theft. Economic risks include price risk, supply risk, regulatory risk, demand risk, and liquidity risk. With proactive timberland and portfolio management, most risk factors can be minimized dramatically. See further explanation of risk factors in Timberland as an Investment - Timber Primer - Risks and Risk Management.
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Q. What has been your history and experience of losses due to fire and insect damage?
A. Over the last 25 years, The Campbell Group has experienced loss of timber values due to fire and insect damage averaging less than one-tenth of one percent of the the value of the entire timberland portfolio under management.
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Q. What do you mean by vertical integration? Why is this advantageous?
A. Vertical integration provides that effectively all Management of the timberland asset is provided by employees of the company (i.e., performed in-house) rather than through third-party providers or consultants. For optimal performance, The Campbell Group employs committed on-site forestry professionals rather than relying on third parties or consultants to execute our strategies. Our philosophy and strategy are focused on client service and adding value. We believe these key goals are best achieved with our own employees. This structure is unique in the industry to The Campbell Group.
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Q. How does an investor best diversify their timberland investment portfolio?
A. The addition of timberland, by itself (even in a single investment), provides positive diversification benefits to an investor's portfolio. As an investor builds their timberland portfolio (utilizing an opportunistic approach), over time, a diverse portfolio of timberlands of varying age classes, species, locations, regions, and country locations can be achieved. Timberland is generally a niche investment and therefore the investor should focus on the region that offers the most favorable value and opportunity and not focus on diversification of the timberland portfolio simply to "diversify".
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Q. When is the best time to invest in timberland?
A. Based on The Campbell Group's opportunistic approach to investing, it is always the right time to invest in timberland. The critical factor is to invest in the right property at the right price. Furthermore, changes in the timberland market environment will provide better buying opportunities regionally at certain points in time.
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