Has anyone researched this or invested in forests? It’s a completely unknown area to me, but pulp-based products and forests as carbon sinks seem to be a bigger megatrend, so I should probably educate myself.
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Last year, some banks seemed to be advertising their ‘forest’ funds.
A quick Google search shows that OP’s fund, at least, has pretty steep fees 
E: S-Pankki’s forest fund fees
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It makes sense that ongoing percentage fees for forest funds are understood when the growth, and thus the yield, of the forest depends concretely on its management. Location also affects forest growth. In Lapland, trees grow significantly slower than in Southern Finland. A forest could be an excellent investment for someone who enjoys working with their hands. The risks to value growth are mainly storms, forest fires, and damage caused by animals. Patience is also required. It takes decades for a clear-cut forest to regrow to its previous state.
The returns from these funds seem to have been reasonable, but I should probably analyze how those returns were generated. I’d still prefer to buy the plots myself and swing a saw. Of course, the thinnings I’ve done have gone to use at the cottage and for friends. Gas doesn’t cost much, but you shouldn’t put a price on time.
The higher temperatures of recent decades have significantly accelerated tree growth more in the north than in the south. Kauppalehti (Finnish financial newspaper) actually seemed to have an article about this. Growth has accelerated by about 20 percent in the south and closer to 50 percent in the north. In southern Sweden, the acceleration of growth has begun to decline as traditional tree species suffer from drought, and the same may be ahead in southern Finland as well.
Hard work with poor and long-term returns.
A new scourge with climate change is snow loads, which even this past winter broke the tops of spruces in my plot, some even in the middle.
However, it’s wonderful to work in the forest as much as possible, such as planting seedlings and clearing.
Yeah, forests grow at a ridiculously slow pace. Willow, alder, and aspen certainly grow fast, but coniferous forests don’t produce saw timber in the blink of an eye.
It makes me smile when a couple of acquaintances play around with forest yields; they’ve cut down birch trees that were just reaching their prime growth and sold them as firewood. Well, sure… that works as a first aid solution, but you don’t trade BMWs for bags of firewood… as they claim.
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Stora Enso’s new forest owner’s guide discusses, among other things, profits:
After the final felling, a new sapling stand must be established, which in turn costs €500 - 1200/ha.
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I follow the forest markets to some extent. In recent years, among those investing in forests, there has been quite a lot of talk about forest property prices soaring so high that it is difficult for a “traditional forest investor” to find a reasonably priced purchase.
Forest investment funds have been pointed out as the culprit for the price increase, as they buy forests at inflated prices to invest the funds flowing into them. Forest funds are said to generate profits mainly for the fund companies themselves — specifically through fees. Thus, fund companies continue to market and sell forest fund shares, even though the funds’ return expectations have significantly narrowed due to rising forest property prices. Self-deception is probably a good word to describe the activity — or even fraud?
As an example, a 145-hectare forest deal in Lapland from November (excerpted from Metsälehti Makasiini 1/2020): The so-called fair value of the property was 59 tons, the asking price 67, and offers made by “traditional forest investors” ranged from 51 to 67 tons. And then the offer made by an investment company: 81 tons. With an offer like that, it’s pretty clear who the seller will make a deal with. The stumpage price for timber was 20% higher than the average price in the area. To top it all off, it was a partial property, so the fund shareholders also had to pay a 3400 euro subdivision cost. I don’t really bother to calculate, but according to my quick estimate, this particular forest property will generate more expenses than income over the next 20 years. But perhaps it can be sold to some Chinese tourism entrepreneur at a good price in 2050.
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There’s been a lot of head-scratching about how these forest funds operate. Farms bought at inflated prices—how do they ever expect to make their money back or achieve the advertised 4-7% return on capital?
Now, forests bought at inflated prices are good decisions if timber prices are higher in the future, if forests can yield returns in ways other than forestry: carbon sequestration, recreational services, hunting rights, leasing natural resources, or something similar.
These are speculative “what-ifs”; nothing like that is on the horizon for a long time. But indeed, it might be in 50 years.
At the moment, one can only ponder that, at some point, the rope will tighten.
Money flows into forest funds, but what happens if money needs to flow out? What does a portfolio manager do in such a situation? Does it sell forest properties below cost?
Additionally, urban “green values” investors happily put money into forest funds because they consider the funds’ forestry to be “responsible and green.”
But oh, brother, if you saw what’s done on a forest property with a return requirement of over 4%. Everything is clear-cut. As much timber as can possibly be taken out. A fine term for this is “forest property takeover logging.”
Furthermore, to save costs, forest management is neglected. Then, they slap an FSC certification on it, attesting to its responsibility, and everyone is satisfied.
The previous generation of owners would turn in their graves if they knew how the new owner is raping the forest property, which was grown and managed according to all the best forestry practices. And as the best joke, this previous owner didn’t even have that certification.
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It’s also worth mentioning that while forestry companies claim to grow more than they harvest and other environmentally friendly practices, they don’t disclose the type of forest. In commercial forests, the diversity of species and tree types is very poor in terms of biodiversity, and the forest structure is very monotonous. A clear-cut on a single plot can practically only be done once a generation, as trees take at least 60 years to grow large enough for more versatile use. So, if you’re interested in preserving nature, it’s not worth investing in activities that support clear-cutting; at most, consider companies that operate with continuous growth methods. If you want to learn more about this topic, I recommend reading the book “Metsä meidän jälkeemme” (The Forest After Us).
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Forest investment is a long-term endeavor. By doing the clearing and planting yourself, you can make a bit of a profit. I have 20 years of experience in this. I haven’t acquired any forest properties in the last five years; prices have really soared. The reasons for this are precisely the entry of funds and large private investors, as well as that forest property deduction.
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From an old newspaper (MT Metsä 2/2020), a comment from an economics journalist caught my eye, which may interest readers considering “easy” forest investing.
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The increase in forest land prices and timber growth has traditionally protected against inflation. How does forest ownership protect against inflation in the current situation, where money is being printed, in a similar way to investing in precious metals?
According to Metla’s (Finnish Forest Research Institute) statistics, timber prices have not even kept up with inflation since the 1970s.
The current low interest rates, forest funds, etc., have only inflated a bubble that has driven up the price of forest plots.
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Thanks. So, timber trade wouldn’t actually protect, but the increase in forest property prices would compensate for inflation. Did I understand correctly?
I got excited and started looking for information on Metla’s website. I found this assessment on the profitability of forest investing: Tilastot | Luonnonvarakeskus
I wouldn’t quite say that. I’ve been following some smaller forums for fun, and the prices are completely outrageous. One would have to invest hundreds of thousands to avoid looking at overpriced hobby plots. The expected return remains in the single digits at these prices.
And I wouldn’t trust that eternal appreciation in value. Even now, timber prices have come down, and one is supposedly expected to pay more.
They just called me. Does anyone have experience with this Swiss company (manages over 400MEur in funds, has been operating for over 20 years)? They invest in Teak plantations in Costa Rica and Ecuador, which are managed by a local foundation.
https://www.lifeforestry.com/plantagen.html
You can get in with as little as 4000 Euros. The investment is in a part of the plantation, and you could exit after 5 years, but they recommend staying for 12 years.
Any other ideas for forest funds?
Teak, Costa Rica, and Ecuador are quite unfamiliar to me, but the stand densities and thinning practices, etc., presented on LFG’s website do not convince me that it would be possible to achieve an annual return of 12+% with the investment. Furthermore, investing in individual trees in a single plantation seems questionable.