Inforain Ecotrust

An Ecosystem-Based Forestry Investment Strategy for the Coastal Temperate Rainforests of North America

Clark S. Binkley, Spencer B. Beebe, David A. New, Bettina von Hagen

April 7, 2006

Summary

Timberland investments have found a valuable niche in large, mixed-asset portfolios. Historical returns have been good, volatility comparatively modest, and, importantly, correlations with the returns of other assets have been low. As a result of these factors, timberland has generated strong risk-adjusted returns. But, as the asset class matures, generating good risk-adjusted returns requires new investment strategies. Ecosystem-based approaches offer exposure to higher-valued, non-commodity markets for timber, lower capital expenditures, and the opportunity to capitalize on emerging markets for valuable ecosystem services. Consistent with the longer-term view of forest investment, such an investment strategy requires new forms of liquidity that do not rely wholly on selling land. An ecosystem-based forestry investment strategy in the coastal temperate rainforests of North America may generate better risk-adjusted returns than does the conventional industrial/financial investor approach.

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