Australian Fund Invests in US Timberland

on Jun 4, 2012

The Wall Street Journal last month announced that Australian institutional investor QIC Alternative Beta Fund has purchased an estimated 42,000 acres of timberland in the US. The purchase was facilitated by Mississippi-based timberland specialist Molpus Woodlands Group.

Reflecting on the investment, James Dick, QIC’s head of alternative investments, said in a statement that the goal of the new purchase is to add “considerable diversification benefits to the timber investments of the QIC Alternative Beta Fund, including geographic, market, end use and species diversification.”
He added: “Timberland is an important asset class for QIC, as we like the low volatility, low correlations to equities and built-in inflation hedging characteristics that these investments provide. Timber has added significant value to our client portfolios in the past and we believe that it will continue to do so in the future.”

According to information listed on the Molpus website, investing in timberland offers several key benefits. For one, timber has a level of price stability along with steady and predictable investment growth cycles. When prices for timber fall, trees can be left standing until the market pick up again.
In addition, Molpus says that historically demand for wood products tends to increase parallel with world population growth. The company cites the US Census Bureau International Database, which estimates that by 2050 the world population will increase by 34 percent.!m[](/uploads/story/44/thumbs/tree_inline.png)

Molpus further noted that timber investments offer liquidity in a moderate period of time, and they can give investors tax advantages. Last, but not least, the timberland management company points out that by investing in forestry, institutions showcase a high level of environmental responsibility.
Molpus also highlights some of the risks associated with investments in timber and timberland, including losses due to potential natural disasters (fires, tornadoes, hurricanes and pests); using too much debt leverage or paying too much for a timberland property, which could lead to a serious negative impact on the investments that is very hard to recover; political and environmental pressures; decreased consumer demand for timber due to a sluggish housing market or market substitution for other building materials; site quality, land management and value risks; poor local markets for products; short-term price volatility and fluctuations in interests rates.

QIC chose the US investments manager as a facilitator of its purchase because of Molpus’ top timber investment management organisation on the one hand and its network of sovereign and endowment funds on the other. In March of this year, Molpus outshined other leading US institutional investors like UBS and Blackstone Group to win Real Assets Manager of the Year at the 2012 Public Pension Fund Awards for Excellence.

“QIC’s approach to investing in timberland is very conservative. We look for managers that have a great deal of operational experience and a consistent record of asset enhancement through better management practices, rather than financial engineering techniques such as using high levels of leverage,” explained Dick.
The QIC Alternative Beta Fund includes a diversified mix of non-traditional assets such as commodities, infrastructure, timber and insurance-linked securities. It currently has 225 million Australian dollars (US$233 million) in commitments for investment in non-traditional assets, and is open to institutional investors.


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