Timber Investment Management Organization (TIMO)

What Is a Timber Investment Management Organization (TIMO)?

A Timber Investment Management Organization (TIMO) is a management group that helps institutional investors in dealing with their timberland investment portfolios. A TIMO acts as a broker for institutional clients to find, examine and procure investment properties that would best suit their clients.

Like some REITs, when a investment property is picked, the TIMO is given the responsibility of actively dealing with the timberland to accomplish adequate returns for the investors.

Figuring out Timber Investment Management Organizations (TIMOs)

TIMOs developed during the 1970s after Congress passed legislation called the Employee Retirement Income Security Act, which energized institutional investors to enhance their portfolios. Before the legislation, investment in timberland properties was made essentially by both large and small firms in the forestry industry. By 2007, a concentrate by the Realtors Land Institute (RLI) showed that roughly $60 billion in the land was managed by TIMOs.

Initially, TIMOs were seen emphatically by forest protectionists, who felt isolating the owners of forest lands from the wood processes that utilization the timber was smart. Afterward, protectionists came to comprehend the TIMOs were not hoping to expand the preservation of America's forest lands. All things considered, TIMOs are centered around amplifying the financial return for investors. As indicated by a review distributed by the Pinchot Institute for Conservation, private forest lands are being changed over for development at a rate of 6,000 acres each day.

Forisk Consulting tracks the largest TIMOs in the United States. The table below records the 2021 top 10 U.S. timberland owners by land and compares this to their earlier year rankings. TIMOs hold six of the best ten positions.

Why Invest in Timberland?

As indicated by RLI, timberland returns have compared well with stocks however with significantly less risk and volatility. Others say timberland returns have shifted over the long haul as the industry has matured.

Returns were negative for a year after the financial crisis of 2008, however have since been expanding. U.S. timberland investment performance is measured by the NCREIF Timberland Property Index. As indicated by NCREIF, investment returns from U.S. timberland between Q2 2020 and Q2 2021 was just 1.46% compared to 18.4% earned by the S&P 500 of every 2020. One year's performance isn't sufficient to accurately measure long-term investment performance, yet this data effectively demonstrates how annual returns contrast for different asset classes.

The facts really confirm that TIMOs can assist institutional investors with expanding their portfolios into U.S. timberlands, yet such real estate investments are most likely best utilized as part of a very much enhanced portfolio with different asset classes, like stocks, bonds, and commodities.

Notwithstanding establishing financial stability opportunities made by market changes, there are a number of different motivations to consider adding timber to a portfolio.

1. The demand for timber is increasing. As of 2008, the demand for timber has been expanding as forest-related product development develops. Even paper reusing efforts affect demand, and as indicated by the Society Of American Foresters, each American consumes a 100 ft. tree every year.
2. Timber is an inflation hedge. Timber increases in value "on the stump" at a greater rate than inflation. As per unbelievable investor Jeremy Grantham, timber prices in the last century (~1905-2005) have likewise developed at a rate that is roughly 3% greater than inflation.
3. Timber returns beat stocks. Measuring returns utilizing the National Council of Real Estate Investment Fiduciaries (NCREIF) Timberland Index, timber investment returns surpassed those of the S&P 500 from 1990 through 2007. In that period of time, the NCREIF Timberland Index annual intensified return was 12.88% versus 10.54% for the S&P 500 index. This excess in return was likewise furnished with less volatility as shown by the Sharpe ratios for a similar period (1.06 for timber, versus .45 for the S&P 500), highlighting the risk/return benefits of timber over the overall stock market.
4. Timber has a low correlation to other asset classes. Commercial timberland prices are impacted by an alternate set of market and economic factors than other asset classes. Since prices are not impacted by similar factors, timber returns are not related to returns of other asset classes, for example, stocks, bonds, and real estate. The expansion of a low correlation timberland asset will increase the diversification of an investment portfolio. The NCREIF Timberland Index returns from 1990 through 2007 showed a moderate to weak correlation against equity and fixed-income indexes and a negative correlation to real estate.
5. Investment in the land as an appreciating asset.

Albeit the land important to develop timber stock can be leased, the majority of timber investors purchase the land. The land supply is limited and demand keeps on developing as the population and commercial development extends. Contingent upon location, some property can be targeted as "higher and better use" land that can be sold to designers at a premium, giving extra appreciation benefits to timber owners. The collapse of markets that require timber as information sources looms as an expected risk. Be that as it may, timberland is a natural warehouse where stock can be stored on the stump until markets and demand rebound. While natural catastrophes, for example, unfavorable climate and fire can likewise reduce stock, even events like the Mount St. Helens ejection in 1980 didn't clear out investors. Harmed stock was as yet significant and was sold to timber and paper companies, then replanted for future profit.

Features

• Institutional investors hoping to invest in timber and timberland often use timber investment management organizations (TIMOs).
• TIMOs act as agents that research and obtain timber investments and accordingly deal with those investments for clients.
• Timber is often viewed as a decent portfolio diversifier that can hedge against inflation.