investing globally in forestland 11- 12 september 2007 wfc investing beyond the frontier clark s....
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Investing Globally in Forestland 11- 12 September 2007 WFC
Investing Beyond the Frontier
Clark S. Binkley, Ph.D.Managing Director
International Forestry Investment Advisors, LLCCambridge, MA
+1 617 945 9059 tel+1 617 868 1096 fax
cbinkley@ifiallc.com e-mailwww.ifiallc.com website
The Risks and Rewards of Emerging Markets Forestry Investments
Investing Globally in Forestland 11- 12 September 2007 WFC 2
Agenda
I. Why invest in emerging markets?
II. The case for emerging market forestry investments
III. Risks associated with emerging market forestry investments
IV. Conclusions: understand the risks before you invest your time or your investors’ money
Investing Globally in Forestland 11- 12 September 2007 WFC 3
In developed economies, structural change—disintegration of the forest industry—is over
– Forward looking returns in developed markets are falling
– Correlation of returns may be increasing– The liquidity premium has been priced out
HBU sales have become a larger fraction of total returns, and are priced at acquisition
Underwriting standards have loosened
Capital—debt and equity—continues to flow into developed-country timberland
I. Why invest in emerging markets?
Investing Globally in Forestland 11- 12 September 2007 WFC 4
II. The case for emerging markets
2003 World Bank Conference – millions of hectares of forest land – extreme capital scarcity – poorly developed markets
Capital scarcity better risk-adjusted returns
Critical social/environmental/economic concerns
Risky: to investors, to investment managers
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III. Risks
“An emerging market is a market from which you cannot emerge in an emergency” -- J. Leonard, GEF
Risks to the investors— Macro: what are the metrics? Sovereign spreads? Academic
studies?— Rarely can “own” land. And, if you can, how secure are
property rights?— Deal structures are complex— Information is poor; collecting information is expensive— Probably need to integrate downstream to pull through value
Risks to the investment manager— Very high transactions costs—IBs won’t travel to three star
hotels, let alone to shacks with outdoor plumbing!— High variance of fund returns—more like VC than timberland?— Risks of total loss— Discomfort, disease and death?
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IV. Investing beyond the frontier: conclusions
Investor desire to move out of developed economies makes a lot of sense— Deteriorating forward-looking returns— Lack of investment opportunities
Emerging markets offer higher returns, but…
Risks are material and differ in scale and kind from those in developed economies— To the investor— To the investment manager
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