Institutions and private investors often seek exposure to asset classes that offer a premium for illiquidity, performance that has enjoyed a low or no correlation with other financial assets that typically make up the bulk of their portfolios, and asset classes that offer some measure of protection to unexpected inflation. Timberland and agriculture are commonly cited as good choices to achieve these goals. The founders and employees of Folium Capital have all worked in timberland and agriculture investing for years to several decades. We still expect these asset classes to provide opportunities to deliver these benefits to investors in the future.
Institutions and private investors often seek exposure to asset classes that offer a premium for illiquidity, performance that has demonstrated a low or no correlation with other financial assets that typically make up the bulk of their portfolios, and that offer some measure of protection to unexpected inflation. Timberland and agriculture are commonly cited as good choices to achieve these goals. Investors are also increasingly attracted by the positive environmental and social benefits that can be demonstrated through responsible investments that conserve and enhance soil, water and ecosystem values as well as good employment and community support in less developed rural areas. Our program embeds rigorous monitoring and reporting against established and new metrics on environmental, social and governance initiatives. The founders and employees of FOLIUM™ have all worked in timberland and agriculture investing for years to several decades. We still believe these asset classes to be capable of delivering these benefits to investors for a long time to come.
Timberland investing has gone from a new asset class to full maturity over the last forty years. Developed market timberland property still offers the benefit of returns largely uncorrelated with other financial assets, and low return volatility, but at levels of expected return that may be less appealing to investors who want a larger premium for illiquidity or with even moderate payout ratios to meet. There are niches in the global industry though that enjoy better projected supply/demand balance and much higher expected returns, albeit with higher country or operating risk. These are the targets for our firm and our clients in the current environment. We focus both on global and local competitiveness of our investments. High value products from forests can compete at long range from markets while lower value products must find markets in close proximity to where they are grown. Our resulting plantations gain third party ESG certification and contribute to local communities, to substitution for products from depleted wild forests, and to the world’s carbon balance.
Agriculture is still in its early stages as an investable asset class. Much of the world’s agriculture is still owner-operated, but suffers from low returns to the owners, rising average age of farmers, and a wide range of intensity and quality of farming. Like in timberland, stable but rather low returns can be made in the large non-irrigated row-crop or livestock farming sectors where there are few barriers to entry and abundant available capital through private insurance, leasing or lending schemes. But in the arena of irrigated orchards and vineyards, opportunities can be found for substantial capital deployment to develop new, or to improve existing operations through change of crop, variety, management, or technology. These are the areas where we find investments for our clients. While views on best use of land and water resources will not always converge, we are committed to using water and other inputs efficiently, using land sustainably, and objectively measuring and reporting our performance through the use of robust metrics. In this way we respect our investors’ needs for information on how their portfolios impact on environmental, social and governance standards.