Chapter 13 - Attracting Institutional Investment into the Australian Forestry Sector

Abstract

This chapter reviews the nature of institutional investment in forestry, and how institutional investors perceive forestry sector. The chapter also reviews current investments and examines factors such as return requirements, liquidity risk management, and portfolio development considerations. Considering the status of the Australian forestry sector, recommendations are made on mechanisms to encourage further investment in forestry. The roles of environmental markets, timber markets, and innovations in the structure of investments are examined. The mature softwood plantations are attractive to institutions as they have well-developed domestic markets and steady cash flow. Institutions are likely to be the major owners of mature plantation forestry assets over time, as they have the ability to efficiently invest large blocks of cash and have return expectations that make them competitive buyers. Institutions do not generally invest in reforestation. This could be attributed to the overwhelming efficiency of the tax-effective managed investment scheme (MIS) funds for reforestation projects, or to the demand for higher returns from greenfield investments with limited cash flow over long periods of time. The emergence of environmental markets and values as a factor in the evolution of the Australian forestry sector investment is discussed.