One benefit of investing in forestry, says Bert Hughes, CEO and forestry director, of Forest Enterprises, is that it is not affected by the peaks and troughs of the economy. It's much less prone to unexpected economic shocks that can spook the share market.
As investors re-evaluate their portfolios in the wake of the Covid-19 pandemic, they are turning to forestry for diversification and to reduce exposure to volatility in the financial markets, he says. They want to invest in an industry which delivers social and environmental benefits as well as good returns.
The latest investment, says Hughes, projects a return of about $129,000 for a $20,000 stake – but you need to be in it for the long haul.
That's the kind of equation that his company, offering forestry investments since 1972, deals in.
Hughes' family have been working the land for generations: "I was brought up on a farm and my parents and grandparents were farm forestry people," he says. "It's a primary industry, like farming, but it's not intensive and, once the planting of radiata pine is done, the land is more or less left alone."
"The trees just keep growing," he says, "and it's a good way to spread your investments over the long-term."
Hughes is a member of the New Zealand Institute of Forestry, an industry group, and concedes that several unregulated forestry investment promoters just haven't delivered – with some investors unhappy that some schemes did not deliver the returns projected by those promoters.
However, he says the government's Financial Markets Authority (FMA) has delivered a welcome change with its strict licensing and regulatory regime covering the whole financial investment sector. His firm has a Managed Investments Scheme licence issued by the FMA to offer and manage forestry investments.
"Those licences are challenging to get – and to retain," says Hughes. "Our assets are held by a statutory supervisor, there are annual audits of forestry assets and our finances. I think it's great for our industry the FMA offers a real safeguard."
Right now Forest Enterprises, is offering shares in its Ngatawhai Group Forest Investment with a minimum initial investment of $10,651 for 200 shares, plus annual contributions until harvest, taking the total projected contribution to $20,797.
The investment's gross return at harvest time, sometime between 2038 and 2046, is projected to be $129,060, or an estimated 9.33 per cent a year – higher than any bank is currently offering though it is a long-term investment.
The company currently has around 6500 investors and its trees and associated land are insured for $450 million, says Hughes.
"Some people have $10,000 invested and others have significantly more than that," he says. "Most of those 6500 people are Kiwis, although there are some offshore owners.
"Investors shouldn't have a fear of missing out. There is no scarcity, but there should be a sense that the sooner you get into a forestry investment, the sooner you can benefit."
Hughes says there are basically two types of investment – right at the start when saplings are planted, like Ngatawhai, or further down the track if an investor decides to sell their holdings before the forest is ready for felling.
"Some people sell on the secondary market when their circumstances change," says Hughes. "We help by matching sellers with buyers."
As for recent criticism of the planting of radiata pine instead native trees, Hughes says natives are a non-starter when it comes to investing.
"Natives are a lot more expensive to plant commercially, they are fragile, they require more care and that involves more money," he says. "So if you wanted to plant a billion trees, the best way to do it is with radiata pine. With natives there's no return at all...that's the reality of it."
Hughes says his firm typically planted on land that wasn't making a suitable return for farmers: "There is a better return in forestry, and the land will only stay in productive use if people invest in it."
Hughes is proud that he's offering investments in what he calls a sustainable product.
"As a member of the Institute of Forestry, we follow a code of ethics including sustainability," he says. "Land use must be sustainable. New Zealand is highly regulated for land use when compared to most other countries."
Hughes says Forest Enterprises is the country's most successful forestry investment manager, delivering "financial and environmental returns - our forests are a renewable resource that is sustainably managed. Forestry is a responsible investment and essential if New Zealand is to meet its climate change goals."
Statutory declaration
Forest Enterprises Limited is licensed to manage Managed Investment Schemes (excluding managed funds) which are primarily invested in forestry assets. For a product disclosure statement, visit forestenterprises.co.nz. The issuer of shares in Ngatawhai Group Forest Investment is the manager Forest Enterprises Limited, and the offeror is Forest Enterprises Growth Limited (a related party of the manager).