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Financial Times Recommends Forestry Investment

Buy a forest: wood is good for you - By Merryn Somerset Webb

What do you do if you are a rich man in need of a pension fund? It isn’t an easy question to answer these days.

There isn’t much point in piling it into an official pension pot. You already lose much of your tax relief as your income hits £130,000 and it is common knowledge that the Lib Dems have it in for higher rate tax relief: after the emergency budget, 40 per cent and 50 per cent tax payers may find that their self-invested personal pensions (Sipps) rather lose their allure.

But investing outside a Sipp is fraught with irritation, too – it will be another 18 days before we find out how high capital gains tax is going, but we can at least be sure that it is going up. So anyone investing in, say, equities or buy-to-let for their retirement is likely to find themselves with a nasty bill as they cash in. So where should your money go?

Private investor Angus MacDonald thinks he has the answer: buy a forest. Why? It is partly about tax. If, when your retirement arrives, you are so rich you don’t need to cash in on your trees, you can hand them on to your heirs tax-free (even if you have only had them for two years). Trees also qualify for capital gains tax rollover (you can avoid CGT by reinvesting gains into forestry); and any income you get from commercial woodland (selling timber for example) is also free of income tax. That’s a nice little perk for a 50 per cent payer.

That said, I would not, of course, ever suggest that you buy anything just for the tax perks. Not even perks as good as this. So it is lucky that there is a case to be made for investing in forestry on its own merits.

Alan Brierley of Collins Stewart, who has looked at the global rather than just the UK market, points to timber’s general lack of correlation to other asset classes and its impressive long-term total returns: the US-orientated National Council of Real Estate Investment Fiduciaries Timberland Index has fallen in only one year since 1987 – that was 2001, when it fell 5 per cent. US fund manager Jeremy Grantham says forestry is the only low-risk, high-return asset that has risen steadily in price for 200 years.

In the UK, the weak pound has kept prices of forestry reasonably high even as timber prices themselves have fallen (our trees look cheap to foreign buyers) but McDonald also points to a host of things that might bring in extra money for owners from now on. There is, for example, the fact that you can usually chuck up a couple of wind turbines if you have a free spot on a hill crest and there is the new craze for harvesting woodland for biomass (read wood chip pellets), as Scottish & Southern Energy intends to do on forests it has recently bought.

But I worry about the global economy. What if Chinese growth collapses, if we enter a massive double dip and demand for timber across the world collapses? That might mean negative total returns however much the value of land goes up. Not a problem, say the forestry fans. Why? No one makes you sell your timber so you just hang on to it until things improve.

You might think that was the case with everything. But trees aren’t quite the same as everything else. If you refused the market price for your gold, you’d still have the same amount to sell a year later. But trees grow at around 4 per cent a year. So you’d have more.

That does great things for your total returns and it also makes forestry a fantastic inflation hedge. So, if you think there is a chance that the end game to the ongoing financial crisis might be hyperinflation (see my column of two weeks ago – www.ft.com), clearly timber is the investment for you.

What’s the catch? Well, if you want to own woodland direct, you need a great deal of it to make it effective. How much? £500,000 worth, says Angus, whose pension money is happily tucked away in trees all over Scotland.

Those of us with less have to make do with funds.

For further information contact:
Oxigen on 0800 021 33 44 or email
info@oxigenplc.com

The term green money could have been coined for Oxigen Investments, the London based green investment company that specialises in planting and harvesting the finest species of exotic tropical hardwoods in the rainforests of Brazil, Costa Rica and Malaysia.

It is clear that Virgin and Oxigen adhere to the same vision. Alex Tai, Chief Executive Officer, Virgin Racing, reinforced Virgin’s commitment to sustainability “Sustainability is one of Virgin’s major commitments both through our business model and also via our long-term commitment to all our communities throughout the world. Oxigen’s philosophy of investment in sustained forests is exactly the type of company model we support and admire. We will be working closely together to define our strategic alliance in this important field and also to identify joint projects. This is a unique sponsorship model which is new to sports sponsorship.”

So why would a tree planting and harvesting company want to partner with Virgin Racing? Simple, Oxigen want to draw attention from consumers and independent financial advisors to Oxigen’s unique investment model and they figured that exposure of their brand to 575m TV viewers every other week would probably be a useful start.

“By partnering with Virgin, we aim to raise our profile. As a company, the more successful we become, the more trees we plant, the more investors make and, more importantly, the more Co2 we pull from the atmosphere and the better the planet is for all of us” says Guy Conroy, Oxigen’s MD. Oxigen investments certainly offers a winning solution for investors, let’s see if this winning partnership works for Virgin Racing. Good luck Sir Richard.

For further information contact:
Oxigen on 0800 021 33 44 or email
info@oxigenplc.com

A British established firm is leading the fightback against the destruction of one of the world's biggest and oldest rainforests on the island of Borneo in south-east Asia, by giving investors the opportunity to join the battle against climate change and help protect endangered species.

Forests in the Malaysian states of Sarawak and Sabah have been savagely reduced by over 50% by illegal logging and the levelling of thousands of acres to develop oil palm Plantations. More recently plans have been revealed to build twelve dams which will destroy even more trees and displace thousands of local people and threaten the habitat of one already endangered species - the Orangutan.

Now Oxigen, one of the UK's leading tropical Plantation companies, has announced its intention to plant three million teak and aquilaria trees on a 5,000-acre Plantation in the threatened region. Oxigen's Woodford Estate is at Beaufort, some 90 kilometres south of Kota Kinabalu in Sabah, East Malaysia, near to Brunei.

Oxigen operates sustainable commercial Plantations where customers buy trees which are planted from saplings then harvested and replanted, giving owners a commercial return. Oxigen's policy is to use land in an ecologically responsible way through sustainable rotation, which means planting and harvesting tree crops on the same sites. Oxigen is also pioneering the practice of agroforestry, which is the planting of crops underneath the forest canopy such as tea, lemongrass, dragon fruit, and pineapples, creating maximum usage of the land reducing pressure on further deforestation and improving biodiversity.

This is therefore a major contribution in the battle against climate change, as this Plantation alone once complete will remove more than 5.7 million tonnes of Co2 from the atmosphere per annum and store over 1.6 million tonnes of carbon in the trunks. At the same time it will support the ban on illegal logging from the natural forests and provide jobs for the families who previously relied on the income from such logging to survive. In many cases revenue from illegal logging activities in these regions is the only source of income for the indigenous population. By giving them an alternative, Oxigen can help solve a fundamental cause of deforestation and protect one of the planet's most important rainforests and ecosystems from further destruction.

Malaysia's deforestation rate is accelerating faster than that of any other tropical country in the world, according to data from the United Nations. Analysis of figures from the Food and Agriculture Organization of the United Nations (FAO) shows that Malaysia's annual deforestation rate jumped almost 86 percent between the 1990-2000 period and 2000-2005. In total, Malaysia lost an average of 140,200 hectares -0.65 percent of its forest area - per year since 2000, amounting to a reduction of over 50% of the natural forest canopy and threatening the habitats of numerous species, including the Orangutan.

Sabah pioneered the reforestation concept in Malaysia when it became the first state to plant logged-over timber areas with two of the fastest growing species in the world Acacia mangium, which is used for board and pulp and paper, and Albizzia falcataria, which is used for fuel. The acacia was introduced in the 1970s by the Chairman of Oxigen's Malaysian Plantation company, Datuk Harris, and is known throughout the region as the "Harris Tree". Datuk Harris is widely regarded as the pioneer of the reforestation concept in the country with commercially viable sustainable alternatives, which are now copied globally.

The Sabah region is now concentrating not on growing trees for fuel and paper but much more valuable hardwoods - such as teak and the most valuable tree in the world, the aquilaria, which produces agarwood. The teak tree, or tectona, is one of the tropical hardwood birches. Teak is extremely versatile, and grows fast under ideal climatic and soil conditions. The aquilaria flourishes when interplanted between the teak, and benefits from the canopy of protection the faster growing teak provides and has recently been recommended by the Malaysian Government for commercial Plantations as a natural rainforest species alongside teak and mahogany.

Oxigen's Investments in Sabah already consist of 130,000 teak trees, which are between 12 and 15 years old, and 100,000 two-year-old aquilaria trees.

How do you make your money work for you through the credit crunch and global financial turmoil when there's little or no income from conventional Plantations? There is a way - and it can deliver healthy and consistent returns. This is a new type of alternative Plantation.

Much has been written recently about investing in timber grown on commercial Plantations, because it's an asset class which has made steady returns over the past quarter of a century, come rain or shine on the stock markets. Since 2004, Oxigen has been one of the pioneering companies in the tropical timber market, both owning and operating Plantations.

Agroforestry, quite literally, sits side by side with timber. It combines traditional forestry and agricultural processes to achieve maximum land productivity. During a forest's early development there are many opportunities to interplant various crops between the trees. It's called interpolation. Crops such as maize, sugar cane, soya, peppers, bananas and cashew flourish on tropical Plantations in Brazil and Malaysia where Oxigen is growing agarwood, teak trees.

The reason this is an ethical Plantation is that it helps these countries reduce the need to import to meet their own internal requirements. This in turn cuts out the harvesting, packaging and transportation of imports, so reducing carbon emissions - a major cause of global warming. Furthermore, maximising land use through agroforestry eases the pressure to turn natural forest into farmland to meet ever-growing demand for food crops in the developing world.

Oxigen is now offering investors who have already bought trees on its Plantations, or have committed to do so, the opportunity to buy agroforestry land in 10 acre blocks. The minimum Plantation in this special launch offer is £25,000, and Oxigen, backed up by harvest profits, will pay investors an annual rental income of between 8 and 15 per cent on their Plantation.