Behind Pictet's Timber Fund

What kind of companies does the fund invest in?

The Timber Fund invests in 40 to 60 publicly-listed global companies with large timberland holdings, as opposed to those who own long-term leases on such assets. Pictet's focus is on companies that operate in tropical climates, chiefly because trees tend to grow more quickly in these regions and costs are therefore lower.

Pictet Timber Fund also tends to favour companies that operate in countries where land is scarce as this can provide a source of capital appreciation. The fund invests in timber companies that also operate paper and packaging products as well as those that manufacture timber products for commercial use.

What are the main drivers influencing the supply of wood?

The supply of wood will be constrained by the steady loss of the world’s forested areas. Since 1990, South America and Africa have lost more than 100 million hectares of forested land between them.

What is the future of wood consumption?

Timber will remain one of the world’s key strategic resources. Demand for timber can be expected to grow strongly for a number of reasons over the next several years. Emerging markets, and China in particular, have become large importers of timber and their future economic development will require ever larger quantities of wood. Also, as the world population grows, so too will demand for timber and timber-related products.

Why should people invest in timber? What are the financial and non-financial reasons?

Timber is a material that cannot be easily substituted. Investing in timber allows investors to capitalise on the growth of an industry in which demand will continue to outstrip supply over the long term.The increasing wealth of consumers in emerging markets and strong growth in the world’s population ensure that demand for wood and wood products will continue to rise in the years ahead.

On the supply side, the world’s forested areas are shrinking at a rapid rate. Timberland investments are also largely insulated from the shifts in the economic cycle, and can offer good protection against inflation. Timber is also a valuable renewable resource; forest can play a key role in climate change – investing to keep them standing is the single most effective way to slow down climate change.

What’s unique about your fund?

Unlike equity funds, which invest in a wide range of materials and forestry companies whose timber operations may be peripheral to their overall activities, Pictet invests in firms for whom timber is a key business. At the same time, because the fund invests in listed stocks, its investments are liquid, in contrast to those held by private equity firms that specialise in timber.

Do you have any interesting anecdotes about the fund or companies in it?

• A forester of Pope Resources got bitten in his hand by a Puma while eating his lunch in his pickup truck. He had left one hand dangling out of the window of his car. Ouch!  Thankfully he made a full recovery.
• Weyerhaeuser's headquarter has the largest single window front on any building in the US. It is a reminder of the time when foresters ruled the world or at least the US west. 
• One of the most well-known forest industry tycoons of Vancouver Island (Doman Singh) was originally an immigrant from India.

Can you tell us anything about the people who work in these timberland owned companies?

Most of the companies are small cap firms, with on-the-ground operations. Obviously there is a variety of job profiles, from the lumberman to the highly educated forestry engineer. If you only ask about the company management people, we can observe a significant number of individuals with a finance background and a post-degree specialisation in timber & forestry management. But it is also not rare to see people with a forest engineering background and a post-degree MBA in finance.