Dealing with Timberland Investment Risk: Theory versus Practice for Institutional Owners

Since 1981, U.S. institutional investors have placed $5.8 billion into timberland assets. They include timberland in their portfolios because returns have competed strongly with traditional portfolio assets, are perceived as low risk, and return correlations with other portfolio assets are low. The subject of timberland returns and risk should therefore be of practical interest to timberland investment management companies (TIMCOs), the firms that manage these assets for institutions. To date, however, the application of academic research on risk to operational timberland investment problems is limited. This paper discusses which research is employed by TIMCOs, which is not, and suggests reasons why.