Global asset managers are now investing big in timber as a “hedge against inflation,” with forestry offering compelling returns similar to life insurance but with the opportunity for far greater income upside.
That is, according to Manulife, the world’s largest forest manager, which now has 2.2 million hectares and US $16 billion in timberland and agricultural assets under management – including interests in the United States, Australia, New Zealand, Brazil and Chile.
Timberland is now big business for Canada’s largest insurer, which boasts more than CA $850 billion in life insurance policies under management. It comes as surging interest in timber—from climbing energy consumption levels, food demand, and construction—has helped drive more than CA $9 billion in returns for its funds last year, up 84% from 2022.
“Timberland is not correlated to the fate of equities,” according to Paul Lorentz, the CEO of Manulife Investment Management, who spoke to Bloomberg overnight. “There are also opportunities to generate other income,” he said, pointing to carbon-offset credits, renting the land out and selling forestry products such as pine straw.
Last month, Manulife Investment Management secured over US $330 million of commitments in a second close of its Manulife Forest Climate Fund — including its first corporate investors. That fund gives backers access to forests, prioritising carbon sequestration over timber production, and seeks to generate carbon credits for investors.
“A lot of folks steer away from timber because of short-term price fluctuations, but we have a long-term philosophy,” according to Roy Gori, President and CEO of Manulife – with the insurer now capitalising on a booming voluntary carbon market – expected to multiply 20 times (from US $2 billion in 2021 to US $40 billion in 2030).
In March, Wood Central reported that Manulife and other asset managers are now assessing forests tree-by-tree, making calls on whether they should be felled – and converted into high-value mass timber products – or left in the ground for carbon credit generation.
“If you invest in a forest, the question we ask is, ‘How do you manage wood products versus carbon?'” according to Brian Kernohan, Manulife’s Chief Investment Manager, who spoke to the Wall Street Journal. “The answer to us is, ‘What do our clients want?'”
According to Mr Kernohan, every tree is evaluated based on species growth rates and product value; if the carbon credit value is high enough, it stays up even for a few more years. If not, it’s cut down for timber. Broad-leaf trees, for example, “are better for carbon sequestration but take longer to grow, creating up to 500 to 600 credits per hectare but taking over 100 years to reach maturity.”
But Manulife is looking beyond carbon sequestration and high-value mass timber products – and is now using timberland for loan collateral, with more than US $5.7 billion in timber and agricultural assets now held in its general fund. According to Bloomberg, this interest “makes up a portion of the firm’s alternative, long-duration assets, held in a portfolio for investing customer insurance premiums that also includes private equities, government and corporate bonds, mortgages and cash.”
