Insect infestation is a major danger. A beetle explosion has wiped out a quarter of the forests in British Columbia and spread into parts of the Northwest U.S. since the late 1990s, said Jim Girvan, president of MDT Management Decision & Technology Ltd., a Ladysmith, British Columbia-based company in Canada that consults for the forest industry.
“The only way you could stop a beetle is to starve it or freeze it,” Girvan said.
Potential catastrophe is one reason Windrose Advisors spreads the risk by investing in private funds that manage timber properties, said William Heitin, the firm’s partner and chief investment officer. The Boston-based wealth-management firm, which oversees almost $2 billion, has invested in the asset for families since 2009.
“As inflation rises the value of real assets goes up --the cost of wood to build a house or to buy plywood or paper,” Heitin said.
Families in the funds, which are run by such firms as Atlanta-based Timbervest LLC, commit at least $500,000 for about 10 years and pay 1 percent of assets in fees and 20 percent for performance after an 8 percent return is earned by investors, he said.
Loan Funds
Clients have averaged annual returns of 6 percent to 7 percent, according to Heitin. Timber funds gained an annualized 2.2 percent in the three years ended June 30, according to real estate council data.
Loan funds are another alternative being offered to affluent investors.
Ballentine Partners, based in Waltham, Massachusetts, in March started putting clients into private funds that lend $25 million to $50 million to U.S. businesses. The firm only uses funds that invest in first- or second-lien loans to minimize default risk, said Will Braman, chief investment officer.
Families, who must have at least $5 million in available assets, need to commit for as long as seven years and can expect an annual return of as much as 11 percent including interest plus cash from loan-origination fees, Braman said. Managers get fees of about 1.5 percent on assets and 20 percent of profits.