I hope I can explain this ultimately simple matter in plain language. The valuation methods and valuations of Finnish forest funds differ from one another. The Metsälehti article below is behind a paywall, but here is a reveal of the funds’ valuation multiples in euros per hectare:
OP: 2900 €/ha,
UB: 3958 €/ha and
S-Pankki: 6823 €/ha
The Finnish average in 2024 was 4007 €/ha. (Median transaction price, Source: MML [National Land Survey of Finland], link below).
UB and OP Forest are located further north than the Finnish average, and their valuations have been at least in the right ballpark relative to the national average. S-Pankki’s valuation has been a clear bubble. This is partly based on facts and partly a guess, but in my understanding, there are no significant differences in geographic location between these three. I’ve occasionally looked at the locations of their forest estates from reports. A 70% higher valuation compared to the median is in no way justifiable when there are tens of thousands of hectares of forest. It doesn’t matter even if there is a bit of the Baltics included or if the strategy is this or that. A single hectare in Lapland can be less than 1000 €/ha, and in the south over 10,000 €/ha, but there simply cannot be such large differences in portfolios of tens of thousands of hectares other than by manipulating values.
Forest data cannot be manipulated in such large entities; few in Finland would even have the expertise for that. Forest and forest management are similar in the big picture between operators. The growth models are the same Luke (Natural Resources Institute Finland) models for everyone. That’s not where the difference in yield comes from. As I started, it’s about the valuation method and especially the input data. Valuation method, discount rate, and stumpage prices. These create the difference in valuation.
I don’t know, and I don’t have an answer as to why it was okay for S-Pankki to keep the forest fund’s value at bubble levels until 2024 and lower it specifically in 2025. But it is clear that it has been expensive until now and likely still is.
An interesting difference! Different methods of forest valuation have been discussed on this forum before; here they are concretely demonstrated. The following description can be found in the prospectus for the S-Pankki forest fund:
“In determining the fair value of the forest properties belonging to the fund, an external independent expert’s statement is used as a starting point. If a reliable market price based on forest property transactions is not available, the value is determined according to the valuation models used by the Fund, which take into account the discounted cash flows over the calculation period. The terminal value used is, as a rule, the felling value.”
The description suggests that information from forest property transactions is used in the valuation if sufficient data is available; otherwise, the discounted cash flow from harvesting is used—in practice, the value of the standing timber. In contrast, OP’s forest fund uses purely timber stock data.
The valuation difference between the funds may partly arise from this distinction. If S-Pankki’s forest fund has purchased forest at a high price in a competitive area, the transaction-based valuation will certainly be high. Furthermore, the forest fund’s own purchases affect transaction prices; if forest funds are competing for forest properties, their values will rise. An assessment based on timber value does not fluctuate as easily according to forest property transaction prices. On the other hand, it could well be that S-Pankki’s forest fund has, for one reason or another, concentrated its purchases in the south. I would consider assessment based on timber value to be safer. Overall, this clearly shows how important it is to familiarize yourself with the valuation and appraisal methods of a forest/real estate fund before investing.
Has it been taken into account in this m2 calculation that nearly 20% of OP’s portfolio consists of Tornator shares, 5% Suomen Metsäsijoitus, and 5% Metsäliitto? I assume the latter two are also shares and not direct forest holdings.
Yes, it is. In the calculation, those exact three items have been deducted, and the €/ha figure has been calculated based solely on the forest land value.
I should also state as a disclaimer that I haven’t invested in any of these, nor am I affiliated with them in any other way. I work in forestry, which is why I’m interested in following them. In my opinion, the expense level is the challenge for long-term returns.
Valuation methods do indeed vary. Karo did go through them well in the “grill” (recommended viewing). This €/ha is a rough but easy metric for evaluating differences. It’s the same as P/B for a real estate company. Book value yields differently for different companies, and multiples vary, but this difference is already too blatant to be justified in any way.
Jointly owned forests (yhteismetsät) offer a less liquid but more cost-effective solution for a forest investor who is only interested in passively owning this great asset class.
I had my eye on a forest of about 30 hectares, which is split into 7 different parcels. I wonder what’s going on, because I checked Stora Enso’s online calculator based on the property ID and it gave a timber value of just over 60,000 euros. Today, I received a forest assessment from the broker by OP, where the timber value was about 144,000 euros!! Both assessments were done without a field visit. These online services use some kind of aerial photography data or similar. I’ve lost interest in buying. Since I don’t have the motivation/skill to go through all 7 areas with a relascope, I’m not going to make an offer at all. I’ve heard that estimates based on aerial photography data can have huge discrepancies, and it certainly seems that way! I’m a bit puzzled as to why the assessment in question wasn’t included directly in the sales listing for the house and forest.
You should compare individual plots and see if the price difference is systematic, or if it’s just a few compartments where the difference occurs. Personally, I’d consider valuations done from the air to be quite unreliable. Here, the Forest Management Association (MHY) has always walked through the forests every 10 years, and based on that, it’s been possible to accurately calculate the yields and costs for the following 10 years. And the person doing the walking hasn’t been just anyone from the office, but a dedicated professional who does nothing but this assessment work.
There was earlier talk about the political risk related to forests; in Finland, ownership is very fragmented, meaning there are many private individuals, with or without a Business ID (Y-tunnus). This broad constituency is recognized (except on the left), so any crazy proposals won’t pass easily. The risk is mainly that apparently more and more people are no longer financially dependent on forest income, nor do they live in the countryside themselves, so “stop drainage and logging” doesn’t bother them as much anymore.
New, presumably more accurate, LiDAR scans are currently being conducted across Finland. At least in previous datasets, the volumes of seedling stands in particular are way off and significantly overestimated. In older stands, however, the measurements/volumes appear to be quite accurate.
When the funds entered the market, they paid way too much for the plots; private individuals could no longer afford to buy them once prices spiraled out of control. It’s about time the truth comes out and values return to the right level. This is certainly going to frustrate investors when the promised returns fail to materialize.
This is so true. Money flooded into funds when timber prices rose after imports from Russia stopped. Funds then used this money to buy everything they could, regardless of the price. A major discount is coming for forest land and timber prices once peace is achieved in Ukraine and raw timber starts flowing from Russia again. Few want to believe that trade with Russia will reopen, but it will.
Thanks for the info. In a forest-related interview, a forestry professional gave some good tips for purchase considerations: In field-based assessments, the timber volume of sparse forests is easily overestimated, while dense forests are underestimated. He recommended buying forest with fertile soil because future growth easily catches up with forest on more barren soil, which might be a bit cheaper. He had bought a hard-to-access plot estimated via aerial photography, where there ended up being much more timber than the remote assessment had shown. Knowledge would be an advantage, if only one had it!
I am currently considering a new venture into forest investment and am weighing different ways to implement it as effortlessly as possible. I am particularly interested in hearing views on passive ownership models. Funds do not interest me.
As one viable option, I have been thinking about leasing a forest estate to Tornator. The model is attractive due to its passivity and predictable cash flow. Another option under consideration is a traditional share in a joint forest (yhteismetsä).
Now, I would like to ask for the forum members’ experiences and views:
Does anyone have first-hand experience with leasing to Tornator? How have rent levels developed relative to the general development of timber prices, and have there been any surprises in terms of the contract details?
I would be especially interested in hearing views on whether the lease model is seen as a good diversification as part of a broader investment portfolio.
In addition, I am interested in experiences with joint forests.
I agree. Forest fund fees are absolutely shocking, around 2% annually. That is nearly half of the forest’s yield. For example, in large jointly owned forests, management fees are around 0.1-0.2% annually.
I also believe that the border will open for wood and other things a few years after peace. That’s how it opened back in the day after World War II for goods and some people, both in Finland and Germany, even though the killing was on a completely different level than now. The price of raw wood will fall, and at current peak prices, it’s not worth buying forest or forest funds.
Personally, I have found jointly owned forests to be a good way of passive forest ownership. I joined my own forests to a fairly large jointly owned forest about 5 years ago. Nowadays, my forest ownership consists of the jointly owned forest’s dividend/surplus dropping into my account once a year.
When choosing a jointly owned forest, I would personally emphasize the following:
Sufficiently large size (at least 1500–2000 ha, preferably more) to ensure a steady cash flow and achieve economies of scale in timber sales and the procurement of management services
Operates across several municipalities (diversification of storm, disease, and pest risks)
A diverse range of professionals on the management committee (forestry, finance, law)
Emphasis on investor interests in the management committee and administration. Don’t put your money into a jointly owned forest where the management committee’s primary motivation is an annual free drinking trip to Tallinn on the shareholders’ dime
The jointly owned forest does not buy additional (overpriced) forest itself, but expands only through estates joined to it
Sufficiently good reporting so that you can forecast income and expenses 20–30 years ahead
I see the present moment as a somewhat bad time to join a jointly owned forest if you need to buy shares or purchase an (overpriced) estate to join it. In my view, timber prices in Finland are not at a sustainable level, and I believe they will fall in the coming years, either through the closure of processing plants or through Russian timber returning to Finland in the form of imports.
Here you can find jointly owned forests that you can join if you already own forest:
Forest investor Mika Venho was in discussion with @Karo_Hamalainen
With returns like that, the stock market’s long-term performance figures are seriously challenged, but investors should not lull themselves into expecting such price bonanzas in the future. Six percent may be a more realistic average expectation.
Around the average return, however, an active forest investor can improve their own returns significantly. It pays to sell timber when its price is in a favorable phase of the cycle. Timely forest management promotes timber quality and sawlog yield – and so on.
Mika Venho also emphasizes the importance of the moment of purchase.
”The purchase price determines future returns.”
This doesn’t only mean timing the purchase for when forest estate prices are low, but also striving to get more than what you pay for when buying. According to Venho, one systematic mispricing relates to the fact that prices tend to gravitate toward the average: less is asked for good forest than should be, while more is paid for poor forest than should be.
Mika Venho himself switched from stock investments to forestry and has made forest investment his profession. Suomen Sijoitusmetsät, the company he founded, assists forest investors with estate transactions and maintains a price register. The group of companies also includes a jointly owned forest (yhteismetsä) and a marketplace for shares in jointly owned forests.
The episode provides a comprehensive look at the principles of forest investing and ways to gain exposure to the returns of the forest asset class.
