Services & Investment Solutions

 

IWC provides a full range of timberland investment related services, from investment strategy, to portfolio construction, to due diligence, to performance review and to strategic advice during the investment lifetime. Below is a non exhaustive list of our services.

PORTFOLIO CONSTRUCTION

  • Investment Policy Statement
  • Short term investment strategy and action plan
  • Investment idea generation
  • Deal sourcing
  • New investment recommendations
  • Portfolio inclusions

DUE DILIGENCE

  • Manager selection, including team and track-record evaluation
  • Business case review
  • Operations and service providers assessment
  • Financial modelling assessment including review of forestry assumptions
  • Specific asset assessment
  • Terms and conditions negotiation

STRATEGIC ADVICE

  • Quarterly report package (asset, portfolio, and market update)
  • Quarterly meeting/call
  • Ad hoc advice regarding ongoing management and discussion with managers
  • Significant event report
  • Action plans
  • Hold/sell analyses
  • Risks analyses
  • SRI/ESG report

PERFORMANCE REVIEW

  • Manager review
  • Asset performance review
  • KPIs review
  • Appraisal review
  • Strategic review
  • Property visits
  • Data storage and benchmarking
  • Portfolio strategic review

IWC also offers a multi-manager turn-key investment solutions via its IWC Timberland Partners funds. To know more about this product, please contact Magnus Weikert, Director of Business Development.

Investment Process

IWC’s views on the outlook for timberland investments across regions, species and forest regimes are considered when developing a timberland strategy in combination with investors’ specific investment policy and goals.

Investment ideas are generated from IWC’s well developed network within the timberland investment industry and supported by information from monitoring existing investments.

Ideas generated from our network are uniquely positioned due to our broad and timely access to managers and investment opportunities (often we are approached for feedback by managers pre-fundraising). Also, we work actively with investment managers to shape appropriate and unique investment strategy propositions to our clients’ benefit.

By monitoring existing funds, we gain valuable insight into idea generation as we:

  • Define preferred investment characteristics for new funds
  • Identify supply and demand dynamics and development in prices and returns
  • Access valuable asset level information.

IWC has a rigorous and consistent multi-disciplinary due diligence. Ideas can be sourced from all IWC team members as IWC has an open door policy to investment opportunities. Due diligence on investment opportunities includes:

  • Initial screening of the investment idea to review its relative attractiveness and fit with relevant mandates, and review of commercial terms
  • Detailed forestry and commercial due diligence drawing on multiple resources and coordinated by a Due Diligence Manager. On the ground due diligence visits are compulsory before any recommendation is made.
  • Assessment of the modelling capabilities of investment managers, including stress testing the assumptions and robustness of the models and the overall appropriateness of the selected modelling framework.

The IC:

  • Ensures structured investment selection
  • Decides on resource prioritization
  • Approves investment recommendatioInns
  • Provides guidelines for all IWC timberland portfolios
  • Is accountable.

The IC is comprised of four senior investment professionals:

  • Henrik Lundqvist (Investment Committee Chairman) – Chief Investment Officer
  • Johnny Vibe, CFA – Director of US Investments & Portfolio Analytics
  • Lars Holm Simonsen – Director of Non-US Investments & Timber Research
  • Céline Claudon – Director of Client Relations.

IWC strives to develop well diversified timberland portfolios taking into account pertinent views on the outlook for timberland assets by region, species, forest regimes, and end-markets. The size of an investment is influenced by the fit with the existing timberland portfolio and expected future timberland investments. Timberland portfolios can benefit from vintage year diversification and from comprising of primary fund investments, secondary investments and co-investments as various investment types impact capital deployment, gross-net returns, and diversification.

Portfolio management consists of:

  • Ongoing oversight of all investments undertaken
  • Assessment of investment performance
  • Client reporting.

This includes appraisal evaluations, cash flow management, property visits, sustainability reviews and financial performance analysis. Information is managed through our research management and portfolio management system, which also supports investment ideas generation and portfolio construction. Portfolio management is responsible for on-going performance analysis, including assessing leverage in underlying investments, adherence to reporting requirements and policies for third-party valuations and ensuring that agreed alignment of interest remains relevant during the life time of the investment.

Why Timberland?

Private timberland is typically grouped into real asset or alternative allocations targeting to generate attractive returns from income and appreciation, provide portfolio diversification, and some inflation protection over the long-term.

  • Attractive risk-adjusted returns – biological growth and harvest flexibility contribute to the historically attractive risk-adjusted returns generated by private timberland when compared with other asset classes. Below are presented the annual compounded return and the annual standard deviation for different asset classes.
  • Low correlations and inflation hedge – as illustrated in the figure below, timberland has historically had low correlations with other asset classes and a strong correlation to inflation. Land acts as a value preserver over time and real timber prices respond to economic demand and end-price increases.
  • Sustainability a complement – managed sustainably, the timberland asset class counteracts deforestation of natural forests, relieves environmental and social pressures, and provides valuable amenities (carbon sequestration, biodiversity preservation, floods and other extreme climate events mitigation, local communities livelihood protection, etc.). Therefore, sustainable forestry is increasingly being recognized, from the responsible investment community, as a multi-faceted impact strategy. For more information, please visit our Sustainability page.

Risk-return profile 1987-2015

Timberland annual correlations 1987 – 2016


Return Drivers

Biological growth – Separates timberland from other types of investments, including property, and it is estimated to be the most important return driver. The effect from biological growth on return is two-dimensional. Not only do trees grow in volume, but as they grow, they also turn into higher value products (called “ingrowth”). The resulting extra volume and consequent value change over time are, to a large extent, independent of macroeconomic or financial market conditions (“trees do not read the Financial Times”). The figure on the right side illustrates how pine trees’ biological growth not only provides additional volume but higher valued products as the tree matures.

 

Timber prices – Numerous macroeconomic factors influence the price of timber, including population growth, GDP per capita, activity in the construction sector, interest rates, and the overall level of economic activity. Moreover, micro factors such as environmental/legacy issues and local mill capacity can affect the stumpage price within regions. It is important to note that during periods of declining timber prices, some flexibility exists when it comes to timing the harvest of trees as they can stand on the stumps.

 

Land values – Historically, land value only represents a small percentage of the total timberland investment value. Land values are related to local supply and demand conditions as well as quality and therefore vary spatially. Nevertheless, increasing competition for land to be used for agriculture, bioenergy production or recreational use, as well as for forestry, can provide upside potential based on land appreciation.

Biological growth

To read more about timberland as an asset class and benefits in a portfolio, please refer to our “Timberland in an Institutional Portfolio ” publication.