A Canadian next-generation entrepreneur says more families are investing sustainably in forestry to achieve their impact goals and for the long-term inflation-proof returns of timber as an asset in their portfolios.
Michael Ackerman (pictured), 38, is the president and chief executive of EcoForests Asset Management. His socially responsible boutique forestry investment management company is headquartered in Toronto and operates 45 plantations in Latin America.
Named after his father, Ackerman branched out from the family’s Central American cable television business Microsat, their hospitality and real estate interests and his six siblings, to work in forestry 15 years ago.
Over the past decade, he grew his family’s initial forestry asset of 350ha to cover 5,000ha in five regions in Central and South America. His EcoForests company manages forestry plantations and conservation projects on behalf of private and institutional investors through agreements with environment ministries.
Ackerman says 60% of projected returns stem from biological growth, 30% is generated by the market price increase of timber and 10% is generated by land appreciation value. Less than 10% is being harvested and 30% of its plantations are protected forest and water wells. The company gives back 5% of its invested assets to the communities in which it operates.
He says timber as an asset class is coming of age in the 21st century as investors align their portfolio to ESG values, technology enhances plantation management and demand for lucrative sustainable renewable resources grows in tandem with the world’s population. In the US, from 2018-20, sustainably invested assets under management, both institutional and retail, grew 42% to $17.1 trillion, according to the Forum for Sustainable and Responsible Investment’s 2020 trends report.
Ackerman says more families are investing in timber as a long-term investment strategy that will support their next generations over the next 15 to 25 years and beyond. Most of EcoForests’ client base is in western Europe and Asia. Clients invest on average $1 million to $5 million and for about 15 years in duration.
CampdenFB spoke with Ackerman in Toronto where an unexpected side business has developed during coronavirus restrictions. One of his companies, Ackerman Trading Network International Corp, was about to divest its hygienic food manufacturing plant and sell its warehouse. However, the family businessman was asked by the Canadian government to turn the facility into a hand sanitiser producer under a Covid-19 emergency licence.
“I was never good at chemistry, but I’ve got so involved in it and we donate 20% of our production,” Ackerman said.
“We’re now also manufacturing sanitation stations for retirement homes as a further growth of the business beyond the contract with the government.”
The entrepreneur explains to CampdenFB how his EcoForests venture engages with families, his company’s sustainable practices and returns, and why the post-Covid world will need timber more than ever.
Why is investing in sustainable forestry attractive to family enterprises?
Timber has outperformed every other asset class in three of the four major market collapses of the 21st century because it’s non-corelated to other assets, like real estate, bonds, equities and so forth. In troubled times, timber has always performed well and we could add these pandemic years to those time.
According to Bloomberg, timber is the new gold, prices have gone up and it remains very resilient. During lockdowns, people were renovating their homes worldwide, including myself, and I think this is one of the things that drove prices up. In Canada, the cost of building a home increased CAD $17,000 this past 2020 due to the increase in timber prices.
The benefit of owning timber assets is that there’s no specific time on when to buy or sell, like an equity or a stock. You can hold the asset and harvest it when it’s the best time. In the meantime, the trees are growing and growing in value and you can harvest it at a later date with benefits.
Timber is a long long-term investment and that’s why it sits very well with families, in my experience, because it allows for wealth preservation passing from generation to generation. Only timber can provide the benefits to more than one generation because the process of timber allows for intermittent harvests. If you have, let’s say 300ha on a 20-year horizon, in five years you will be making a return then in 10 years another return, so it’s dividend-paying, even going from one generation to the other.
I have certainly seen a very strong interest from families moving into forestry for various aspects. One is the ESG mandate in families and going into impact investment, it’s a very important for them. The Campden Wealth Global Family Office Report showed that 25% of the average family office portfolio will be allocated to impact investments within five years.
Talking specifically about timber, just recently the International Code Council approved the building of tall wooden structures worldwide—18, 12 and nine-storey buildings—and this is a big breakthrough for the industry and the environment. A lot of people don't realise, but to build a structure with cement you need to mine the clay and the iron to produce steel and that is a very big footprint. Cement versus building a 10-storey structure out of wood and, as we know, trees produce oxygen and capture carbon.
How are you engaging with families interested in forestry and how are you generating returns for those investors?
The industry has certainly grown. In the last 30 years it’s gone from $2 billion to nearly $350 billion invested in forestry. The difference with us as a boutique forestry investment company in comparison to the various timber funds out there is that we have a much more personal approach to what we do as projects.
For example, 3-5% of initial investment is matched by the company and is used for social projects around the regions where we work and this is one of our very strong mandates. You will see with large timber funds they have allocated money for social projects, but most of them never reach any completion.
Last year we focused on education and sports, so we built two schools in Costa Rica. We built lighting for two soccer fields and we issued a number of scholarships to students studying for careers in forestry, sustainability and the environment.
The benefit of working with us rather than with a timber fund is that you get direct asset allocation. You have direct ownership of the real assets which is the land and the trees and having that ownership brings you closer to your investment. You have an option of having different timber species in different geographic locations—we are operating in Costa Rica, Panama, Colombia, Ecuador and Honduras.
My personal touch with families includes a 10-day fully paid visit to Costa Rica which includes visits to our nurseries, our plantations, sawmills and then 5-6 days of leisure with a cross-country trip across the country from the beach to mountains and volcanoes and into San Jose, the capital city.
Tell us about an EcoForests project you are especially proud of.
One of the best projects that I always enjoyed is in Costa Rica in the region of Guanacaste, that is the world’s best region for teak wood. We bought an entire mountain that was for sale, it was deforested and used for cattle farming. We came and it was very hard, the soil was very dry and without nutrients. It was a beautiful location, overlooking the Pacific Ocean.
We started work with topographical engineers and soil analysis. We brought the soil back to its natural state with potassium and calcium so we could work the land again. We brought our young trees from our nursery and planted them.
We didn’t realise in that mountain there were five natural water wells. They had dried up over the years because there was no biodiversity. The canopy of the tall and thin trees creates a shadow which makes the area moist. I came back to the plantation to check three years later and it was impressive to see water just pouring out of the ground and creating a small waterway flowing from the mountain.
One of our employees wanted to become somewhat of an entrepreneur and we allowed him to use two of the wells. He pumps the natural water from there, bottles it and sells it in the community.
It’s a nice story to tell because animals returned to the area, you see birds flying and monkeys jumping from tree to tree. That happens in other locations, but this particular one was because we didn’t know about the water wells and you can see the biodiversity return to its natural state. This is entirely the definition of sustainability and bringing forests back.
How is EcoForests sustainably managing that site?
The project is still in a growth stage. At some point there will be harvesting, but sustainable harvesting. This place will never end up being a clear-cut area again.
We are cultivating timber for future demand. The projection is two billion more people in the world in 20 years. The demand for timber is parallel to population growth, it always has been, because every individual need products from the forest on a daily basis. If companies like us did not exist, but population continues to grow, where would you imagine that the timber will come from? It will come from aboriginal forests from natural forests and rainforest. If there is demand, there will be a black market. Somebody will go and cut the tree because somebody else needs it. By the action of managing plantations, as a by-product we are protecting natural forests.
What does EcoForests do with harvested timber?
We work with a number of species: pine, eucalyptus, teak, mahogany and oak and they all have different uses. Some of them are softwood, some are hardwood. Teak, for example, is widely used in in the boating and yacht building industry. Pine and eucalyptus can be used for pulp and paper.
The change in the building code is something a lot of people have been waiting for to be able to switch from steel and cement to building with wood. Now you’re allowed to do that.
Having the United States re-join the Paris Agreement, with the Clean Air Act and now with President Joe Biden pushing environmental policies in a very strong way worldwide. Countries like Canada are moving away from plastic packaging, so the paper packaging industry is projecting growth and paper packaging comes from trees. I feel that will put pressure on availability and demand for sustainable forestry will grow exponentially.
How do family investors engage with EcoForests and what are the returns like?
Many families are moving away from philanthropy and engaging in impact and we see that among the people investing in timber—they can have control of their project.
As a boutique structure we like to discuss with the families to understand their needs and requirements. We worked with an important family from Hong Kong which was more interested in conservation than returns. They wanted to have a forest to help the community in Costa Rica so we set up a conservation project where most of it will not be harvested on behalf of that family.
Forests are long-term so a quick forest investment is 10 years. Families that have an active financial mandate and they need short-terms, we can set up a short-term project which is a minimum of 10 years, but obviously that has lesser return. If a family wants a longer wealth preservation type investment for their next generations then we will structure a 15 to 25-year forest plan that includes various geographic locations, timber species and age groups. That way you get a timber portfolio tailored very specifically to families.
We set up a special purpose vehicle for the investment, which is like registering a company for them. The returns can vary anywhere from 6-14%, depending on how we have structured the investment for them.
We know that the world is going into very high levels of debt with all the money that’s been pouring out over Covid. With that in mind, what comes after large government debt is high inflation and we’re going to be living in a very high inflationary period. I can see it as being as bad as the Great Depression was, taking 8-10 years to recover.
If you agree we’re going to a high inflationary period then timber is one of the best asset classes to protect your funds. Timber has always had an inflation hedge It’s a commodity, so it has real value. If the price of inflation goes up, the price of commodities will go up so if you invest $1 million in forests today and you want to secure it for the next eight years when there will be high inflation, the value of that commodity will hold that value. But if there’s a devaluation of the currency or other assets, like real estate or bonds, if there’s high inflation then you’re not protected from that.