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Activists here to stay as war chests near $100 billion Market Extra

Activists here to stay as war chests near $100 billion Market Extra | Risk-Adjusted Returns | Scoop.it
Whether they’re castigated as corporate raiders or lauded as activist investors, Carl Icahn, Bill Ackman, Dan Loeb and other trouble-making billionaires aren’t going away anytime soon. Whether they’re a friend or foe to shareholders is another matter.
Jack D Bridges's insight:

Good read on the ecosystem of activist investing.

 

The value segment within this universe typically produces some very good research. One shop I follow, Starboard Value, goes beyond the usual activist MO (attacking management, going on CNBC, proxy-fighting for Board seats, pushing up stock, saying bye-bye). 

 

Over a period of years, Starboard nudged one company to speed-up some important changes--persuaded it not to take on more debt, and probably attracted a lot of institutional interest in the company's stock. In other words, they waged a very thoughtful, very patient, very successful campaign.

 

Starboard didn't just mindlessly push for a huge debt-fueled stock buy-back; they didn't go on CNBC or twitter to talk their book. What Starboard did do is a ton of research on this particular company, and  then methodically executed an excellent strategy. In short, very good activists blur the line between how hedge funds, and private equity behave. As you'll see, not all activists operate with such precision--or patience.

 

180 degrees away from Starboard is The Icahn Way. Perhaps my view of Uncle Carl is unfair, and looks too much at his unethical behavior in the 80s (read "Predator's Ball," by Connie Bruck), and his very recent exploits, which include Dell, Ebay and Apple.

 

Looking at his latest quests--haranguing Michael Dell, pushing Ebay to spin out Pay-Pal, and brow-beating Tim Cook to buy-back more stock--the results aren't impressive. Meh, at best. What Icahn does is far more public relations work, than investing. Chasing camera crews around Manhattan trying to squeeze a few extra BPS out of large cap stocks? No, thanks.

 

Icahn has his defenders--perhaps the guys who got rich riding his coattails during the Drexel Burnham cartel days; you won't find one here. Instead of following personality cults, I look for research that belies a thorough bottoms-up approach. Once that baseline is established, the best "activists" establish clear goals for their campaign, then carefully ply their craft. 

 

The shops with this kind of methodical approach won't have any trouble raising funds when the current bull croaks. No. If mammoth pools of capital like CALPERS are allocating to this space, activist coffers should be full for the foreseeable future. 

JDB

 

 

 

 

 

 

 

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Seeing the trees, Missing the forest

Seeing the trees, Missing the forest | Risk-Adjusted Returns | Scoop.it
Jack D Bridges's insight:

If I've learned anything in the last 12 months it's this: Professional investors just don't understand timberland investment. 

 

I could easily spill 5,000 words on the subject, but let's just focus on three brief reasons why. 

 

1) Many wealth managers still prefer liquid, faux-timber investments: The timber REITs (WY, PCL, RYN, PCH, CTT). These vehicles are publicly traded equities--and are highly correlated to the S&P 500. Actual, physical timber assets exhibit a negative correlation to common stocks--which offers real peace of mind when the financial system seizes up in panic about every 7-8 years.

 

It also pays to remember the REIT structure encourages leverage, in order to take a somewhat lumpy business with varied harvests, and pay-out a steady distribution to shareholders. With our current monetary policy (and Wall St. feasting on the Fed's carry), this might not seem like a big deal; let's see how this balance works in a time of "normalized" rates. To sum up, leverage, equity correlation, and a reliance on Wall St. with its hyper short-term thinking, in a long-cycle industry. The price of liquidity is steep indeed: You've been warned.

 

2) Timberland is an incredibly hard asset class to generalize about. There are huge differences between continents, regions, wood-baskets, specie growth rates, specie mix, HBU values, etc. So, when someone says to me, "the asset class is over-valued," it trips my antennae. Really? You think so, do you? What regions seem over-priced, and why? Because, to say the domestic timber REITs are over-valued is actually quite a different statement altogether...

 

3) The trick is finding inefficiently priced assets--or managers with access to them. And, guess what? Much of the domestic timberland marketplace is probably too efficient, making alpha far harder to come by. So, one needs to look to other markets (or at least niche managers) within the asset class to find growing wood baskets at attractive prices. And, sorry Charlie, these opportunities are not available in liquid, ETF form. 

 

To be fair, not all TIMOs and PE funds are, by default, preferable to listed timberland businesses. But, for sophisticated, accredited investors with choices--the opportunities in the current marketplace aren't found on an exchange. 

 

JDB

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Sam Radcliffe's curator insight, March 14, 6:39 AM

The above opinion is from Jack D. Bridges who has a great column at http://www.scoop.it/t/risk-adjusted-returns. Check it out.

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Lessons from Seth Klarman: How to find value, when (almost) everything is expensive...

Jack D Bridges's insight:

1991 saw the end of the USSR, the first Bush war against Saddam ("this aggression will not stand, man") and most importantly, the publication of Seth Klarman's classic, "Margin of Safety." 

 

This Barron's interview from 1991 covers familiar ground for value investors, and those of us who know the book---but it's a worthwhile read, nonetheless.

 

Even if many of the structural market inefficiencies no longer exist as they did in 1991 (how many more funds buy spin-offs now; how many hedge funds compete for a finite number of distressed securities, etc.), what's important in the interview is this: Klarman's process.

 

Why? The Baupost discipline ignores a whole host of risk-chasing, herd-like behavior among professional investors. Klarman will keep cash levels extremely high (30%+)--or even return cash to investors if he cannot find securities that meet his criteria; Baupost largely ignores the broader market, and hunts for special situations (see pages 7-8 for a few general areas); Baupost builds and holds positions for very long periods of time. 

 

http://screencast.com/t/XfKICgVIn1Cf

 

If the above chart of the S&P 500 since 1990 scares you (let's hope 2014 is just a consolidation year, folks), consider raising some cash and learning more about how Seth Klarman manages money. It will make you a better investor. Trust me. 

 

As for finding value right now, I would concentrate on specific businesses that institutional investors have thrown out the window recently--maybe it's coal companies, or miners, or certain S. American integrated oil concerns (not PBR...), but the list of "ugly" looking equity charts is finally starting to grow. And, that's exactly what value investors like to see.

JDB

 

 

Many thanks to "The Odd Lot" for finding this gem:

oddlotinvest.file.wordpress.com

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Corn Plummeting Spurs Talk of ’80s U.S. Farmland Bust: Mortgages

Corn Plummeting Spurs Talk of ’80s U.S. Farmland Bust: Mortgages | Risk-Adjusted Returns | Scoop.it
Din Tai Fung, a restaurant in Shanghai’s Xintiandi district, is famous for its steamed pork dumplings. The pigs that keep those dumplings on the table are fattened with corn -- much of it imported from the U.S.
Jack D Bridges's insight:

I've written a few posts in the past year about US farmland prices on a perilous path: One that sees prices detach from reality. Well, the above is a great read, and explores the danger of chasing an asset class, no matter how good the secular trends look (population growth, rising demand, global decrease in arable land, etc.). 

 

Anyway, it pays to remember the most important part of investing: Price paid, for anything, is often the single biggest driver in one's return. 

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Timber REIT update: Two secondaries, and a cellulose sell-off

Timber REIT update: Two secondaries, and a cellulose sell-off | Risk-Adjusted Returns | Scoop.it
Jack D Bridges's insight:

It's been a busy fall for the Timber REITs: Weyerhaeuser completed the sale of Wreco, through the seldom used, wrestling move-sounding, Reverse Morris Trust. Plum Creek bought 500K acres of prime southern hardwoods from MeadWestVaco--issuing 14M shares to pay for part of the tab. And, Rayonier scared 20% off its market cap by talking of compressed margins for its cellulose fiber business in 2014. Whew!

 

Given all this activity, let's look a little more in depth at what these moves mean for investors. 

 

1) WY Becomes more "Pure"

Purchasing Longview Timber, and divesting their homebuilding division, makes Weyerhaeuser more of a 'pure' timber play--creates synergies and even more scale for their Pac. northwest operations. 

 

http://www.bloomberg.com/news/2013-06-16/weyerhaeuser-to-buy-longview-timber-for-2-65-billion.html

 

Despite the high price WY paid for Longview (for $4109/ acre, the lands should be stocked with loads of veneer sawtimber), the move seems prudent. The market absorbed the equity dilution well, WY raises its distribution (currently about 3%), and the company increases its exposure to a crucial export market (Doug Fir logs typically command a premium for export). 

 

Within the timber REIT universe, Weyerhaeuser seems to be in the best shape going forward--in terms of balance sheet, core geography, and being less reliant on a continued domestic rebound in housing. 

 

2) Plum Reaches for Southern Comfort

I've written about Plum's concentration on the south before, but the recent acquisition of 500K acres is the centerpiece of this intense focus on the region. PCL took on more debt, and did a secondary at $45 to pay for the deal--and today, Plum equity has fallen below the offering price. Part of this is PCL going ex-dividend and the worry about Fed tapering of QE, but it bears watching how investors view the deal going forward.

 

If one thinks the broader equity market is priced to near perfection (as this writer certainly does), the problem with timber REITs correlation to the S&P will rear its head. Why? This is the rub of owning companies who have an asset base whose value can often be negatively correlated to markets, but whose stock price  and valuation day-to-day is close to a correlation of one.

 

So, by owning timberland through the timber REITs investors are losing one of its cardinal virtues, and arguably, gaining a bigger liability: Exposure to the casino. Not to sound too cheery, it's just something to bear in mind if and when equities head into the next bear market...REITs might out-perform, but they'll still lose value.

 

Pardon the digression, but Plum is often a highly shorted equity, and tends to act more like the S&P than the other REITs. Still, long-term, the acquisition should work out well no matter what one thinks of southern saw-log prices, household formation, or housing starts. The deal and the secondary look like smart strategic moves for Plum. And, the PCL offering under $45 (for those without access to Priv. equity timber funds) is worth dipping into. 

 

3) The same thing that makes you Laugh...can make you Cry

Rayonier has seen better days: 

http://stockcharts.com/freecharts/gallery.html?s=ryn

 

Just today China came out with a tariff ruling that could impact some viscose exports from Rayonier (the company says it's non-material, and disregards their high-value products). As I mentioned in an earlier post, the business that gave Rayonier such appeal as a diversifier away from housing, has turned into a headwind as margins contract--and investors flee.

 

So, the selling in Rayonier could eventually present a buying opportunity--but most professionals will wait a quarter or two before jumping into a story like Rayonier. 

 

4) Pot-wha?

Even though Potlach owns 1.4M acres, it's kind of the forgotten timber REIT. Why? Geography, for one:

http://www.potlatchcorp.com/Landholdings.aspx

 

Potlach's ownership is rooted in wood-baskets without much export potential or infrastructure (This isn't to say that there isn't great HBU value in their portfolio--it's just the market tends to focus much more on the giants above). One final word about PCH--management is cautious and deliberate, and focused on growing the dividend (something to bear in mind for those lookng for dividend growth, without a likely dilutive 'deal').

 

For more detail on Potlach, this is a good read:

http://seekingalpha.com/article/1761192-potlatchs-ceo-discusses-q3-2013-results-earnings-call-transcript?source=yahoo

 

That's it for this very brief tour of the fall season for the four timber REITs. Given how these cycles work, there shouldn't be any more large deals for them for the next few years. Any M&A flow going forward will likely come from the TIMOs--and their 30M acres they control in the US. 

JDB

 

 

 

 

 

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Molpus Woodlands Group to Acquire 73,000 Acres in Alabama

Molpus Woodlands Group to Acquire 73,000 Acres in Alabama | Risk-Adjusted Returns | Scoop.it

The Molpus Woodlands Group, LLC (Molpus), a timberland investment management organization headquartered in Jackson, Mississippi, has, on behalf of a client, entered into an agreement to purchase approximately 73,000 acres of timberland located north, east, and west of Birmingham, Alabama.  The close of the purchase is set to occur in installments starting in October 2013.

 

The timberland, located in thirteen counties, consists of well-stocked loblolly pine plantations distributed among all age classes.  Molpus currently maintains an office in Hoover, Alabama, to oversee the management of approximately 161,000 acres purchased earlier in the Birmingham area.

 

"We look forward to adding another property under management in the Alabama area," said Molpus Woodlands Group President, Dick Molpus.  "These properties represent a high-quality timberland investment within a competitive timber market, and they offer strong recreational opportunities to the region as well."

 

Molpus currently manages approximately 1.5 million acres of timberland investments in seventeen states and employs ninety-seven peope in its fifteen offices operating in Alabama, Arkansas, Florida, Georgia, Idaho, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, New York, North Carolina, Oklahoma, Pennsylvania, Tennessee, Texas, and Virginia. 


Via Sam Radcliffe
Jack D Bridges's insight:

No mention of price for the deal, but let's assume that Molpus didn't acquire these timberlands for their client at a discount. It would be interesting to see how they break-down the pure timber value per acre, in addition to the HBU acreage involved. 

Thanks to S. Radcilffe at Prentiss & Carlisle for the scoop!

http://www.prentissandcarlisle.com/

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Farmland fetches $14K/ acre at Ohio auction...

Farmland fetches $14K/ acre at Ohio auction... | Risk-Adjusted Returns | Scoop.it
Jack D Bridges's insight:

Makes quite a headline, doesn't it? 

 

What caught my eye was not the price (high as it is). No. What got my attention was the buyer: "the high bidder was an investor from the Netherlands." 

 

Before you're tempted to say 'tulip bubble,' note that farmland is indeed a productive asset, with utility beyond just looking pretty, or earning location fees for Kevin Costner productions. 

 

Farmland of this sort has extensive data that measure soil quality, crop yields, and other vital metrics. And while all of my grandparents were raised on farms, I won't pretend I understand the economics of relatively small scale farms in the Midwest. 

 

So, why write about one tiny auction, amid millions of acres of farmland across the US? Are we in the early stages of an asset bubble?

 

To be fair, one data point does not establish anything--other than to say productive farmland in Van Wert County Ohio is far from cheap. Still, if you look at relative prices across the state (or the midwest, comparing comparable yielding acreage), it's clear that prices are high no matter what assumptions one makes: 

 

http://acresmidwest.com/farm-land-value-never-higher/

 

As I said, I'm no expert in farm economics, but this trend is a bit worrisome as investors chase prices higher. At some point, assumptions detach from reality, people start over-paying because everyone else is, and we've seen the dangers of this trend for illiquid assets like real-estate. 

 

I'm sure our Dutch friend who bought the $3M worth of farmland in Ohio will make out OK. But, when one combines ultra-low interest rates with aggressive assumptions about future farmland returns, well, it could make for a bitter harvest. 

 

http://www.pbs.org/wgbh/americanexperience/films/dustbowl/player/

 

You can read the press release here: 

http://www.prnewswire.com/news-releases/farmland-price-tops-14000-per-acre-in-ohio-auction-227081121.html

 

JDB

 

 

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Global farmland offers potential for asset deals

Global farmland offers potential for asset deals | Risk-Adjusted Returns | Scoop.it

As the world’s population swells beyond seven billion and emerging markets’ appetite for food grows, Canadian institutions are getting increasingly hungry for agribusiness and farmland acquisitions abroad.

***

Canadian institutions, tired of the lacklustre returns in the market, are seeking options with better yields than gold and government bonds, such as agriculture, experts say.

***

This year, Canada Pension Plan Investment Board launched its agriculture investment program, and made its first direct farmland investment in a portfolio of U.S. farmland.

***

CPP’s initial focus will be the U.S., Canada, Australia and New Zealand, it added.

 

Meanwhile, the Ontario Teachers’ Pension Fund at the beginning of this year created a “natural resources” investment asset class. Teachers says it will look for “new opportunities in oil and gas and agriculture.”

***

Last year, Caisse de dépôt et placement du Québec and British Columbia Investment Management Corp. joined with U.S. financial services company TIAA-CREF to create a global agriculture investment vehicle, with $2-billion earmarked to buy farmland in the U.S., Australia and Brazil. In 2011, Alberta Investment Management Corp (AIMCo), joined a forestry management firm in a $415-million acquisition of Australian timberlands — options for which chief executive Leo de Bever said included reverting it to agriculture.

 

Farmland, with its steadily rising prices, is a tantalizing investment option – and one that provides interim income by leasing it to agricultural operations, says Mr. Barnes.

***

Farmland values across the globe between 2002 and 2010 have risen up to 1,800%, according to the Global Farmland Index compiled by U.K.-based real estate firm Savil.

***

But the fact that prices have escalated so rapidly is a problem for potential investors, says AIMCo’s Mr. de Bever. He wonders whether the investment potential for farmland has run its course.

 

He explains that the rationale for investing in land is that, with rising demand for protein in the Far East, existing landstock will become more valuable. Yet he points out that land values operate on a long cycle, and that the recent run up in value has been compressed into a short timeframe. “It’s not clear to me that any increase in farm prices is going to be rewarded with an appropriate return.”

 

Still, Mr. de Bever says AIMCO, and other investors, will keep an eye out for farmland acquisitions — albeit a cautious one. “My guess is that there is still going to be quite a bit of demand. My concern is that I would be very picky and make sure that you’re buying right.”


Via Sam Radcliffe
Jack D Bridges's insight:

Great find from Mr. Sam Radcliffe, of Prentiss & Carlisle (http://www.prentissandcarlisle.com/).

 

If Mr. Radcliffe is right, and the same trend follows apace for global timberland markets--look out. I can think of a few established firms who will gladly sell to the many new buyers who will be forced to chase prices higher still....so much for efficient markets, huh? 

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Sam Radcliffe's curator insight, September 27, 2013 6:24 AM

A lot of parallels between this demand for farmland and the demand for timberland, and a lot of the same players. It will be interesting to see if the structural changes in farmland investment (e.g. TIAA) get adopted for timberland.

josh dekoning's curator insight, October 3, 2013 10:15 AM

The people of Canada are starting to buy up more farmland becuase the value is increasing and they can see the amount of potential money they can make.    With more land available we will be able to provide food for the 7 billion people on the world.  Hopefully the price will not continue to grow otherwise people will not be able to afford to buy it because they won't be able to make their money back and will lose money.

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Jeremy Grantham, the chief investment strategist at GMO, warns investors about dwindling resources

Jeremy Grantham, the chief investment strategist at GMO, warns investors about dwindling resources | Risk-Adjusted Returns | Scoop.it
He called the Internet bubble, then the housing bubble. What alarm bell is Jeremy Grantham, the chief investment strategist at GMO, ringing about now?
Jack D Bridges's insight:

There will be some smirks among asset managers reading this interview. "Why should I listen to this perma-bear now," they might laugh.

 

Well, if these money-runners had brains, they would thank the Fed for shoving asset prices past historical norms, sell the nosebleed expensive pieces of their portfolios (tech, consumer discretionary, etc.) and then learn a few things from Mr. Grantham. 

 

You see, Mr. Grantham has "missed" equity market rallies before. However painful, it misses the point of what GMO delivers for its clients: steady, solid risk-adjusted returns over time. 

 

Particularly for small investors, Grantham is an important read. One can assemble a basic hard asset based equity portfolio, simply by reading this interview (OK, so a bit of research & stock-picking is required, too). 

 

Sadly, applying obtuse labels is quite common in the investment business. It's a shame, because great ideas are always found from both optimistic, and more realistic, analysts. In this case, with so much optimism priced into US equities, it's a much better time to focus on what can go wrong with an investment, rather than what can go right. It's just common sense. 

 

Do yourself a favor: if you don't already know Jeremy Grantham & GMO, now is a good time to get acquainted.

 

 

 

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Nobody Expects the Spanish Inquisition

Classic Monty Python sketch. Full clip available here: http://www.youtube.com/watch?v=uprjmoSMJ-o. More information here: http://en.wikipedia.org/wiki/The_Sp...
Jack D Bridges's insight:

There are times in markets when risk of all flavors is ignored, and mutual fund managers pull the strings on their backs and say, "Mr. Market likes to climb a wall of worry." 

 

This cavalier attitude about risk brings to mind the Python clip above...if you manage other people's money for a living, it's kind of your job to expect The Spanish Inquisition.  What do I mean by this? It's simple.

 

If one is managing risk properly, and holding to portfolio discipline, it's possible to stand above the turmoil and calmly sort through the securities being thrown out the window by those with 10 second holding periods. 

 

On the flip side, when equity markets repeatedly offer great points to either take profits or rotate into lower risk assets (and let's call a 10-15% rally spurred by QE3 a great example), and one just smirks and says, "the market is climbing a wall of worry again," you should fire yourself. Immediately. 

 

Take this week, for starters. Mr. Market ignores Syria for 24 months, until Sec. of State John Kerry takes to the airwaves to say the recent chemical attack must be addressed. Mr. Market doesn't like these words, and sells off. Time to sell? Perhaps, if you haven't sold anything THIS YEAR, but it depends.

 

The better time to trim positions aggressively was at SPY 1700 a few weeks ago, when the VIX (volatility index) was at 12, professional investors were complacent, and risk was clearly mispriced over multiple time-frames. 

 

Now, for those who focus on value, and adhere to sound portfolio management (keeping high cash levels; trimming selective positions opportunistically, etc.), times like this are when the market begins to get interesting again. 

 

Nobody expects the Spanish Inquisition? Well, in this business, maybe it's a good idea to dust off those high-school history books, and learn about Friar Torquemada. 

 

Post-script: I'm not a geopolitcal analyst, but if Syria unravels into a broader conflict in the Middle East, volatility will return with a vengeance this fall--and integrated oil stocks will finally see some bids. As I type this, the VIX sits above 16; the next level to watch is a close above 18, which would probably trigger more jitters and selling in equities. 

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Estimating the Timberland Discount Rate


Via Sam Radcliffe
Jack D Bridges's insight:

Yesterday, I made a lengthy attempt to build on Mr. Radcliffe's excellent discussion of discount rates & risk premia in timberland investment models. Sadly, my one-year-old decided she preferred a shorter version of my treatise: She deleted the whole thing with one slam of her chubby hand. Ugh.

 

So, where to begin? I'll talk briefly about three issues: ultra-low rates, and how it skews risk; where and how this occurs in the marketplace; and why we should be careful about assumptions and models. Let's start with the entity that seems to filter through every asset class and investment decision at present: The Federal Reserve. 

 

Thanks to the never-ending stream of bond buying (QE, or quatitative easing), investors across every asset class are literally being pushed into taking risk. It's no different for timberland investment--and what the Fed is doing is having a clear impact on the assumptions (and math) employed by institutional market participants. 

 

In short, low discount rate assumptions provide for a bigger margin of safety when buying an asset; higher, more aggresive discount rates, increase the odds of over-paying--or sometimes produce outright losses (in the case of most asset purchases in 2008, when the credit bubble burst, and our financial system collapsed).

 

Where is this impact in the market? I'm not dealing with a great data set here, but in the Lake States region, I can think of several auctions over the last two years where aggressive assumptions not only won an auction, but left the other bidders scratching their collective heads. I won't get into specifics, but the winning bidder was a large TIMO, and the losing bidders (some end user timber companies, mixed with other PE funds) told me of the likely small future returns for the properties at such prices. 

 

I'm far from an expert in building and applying DCF models. For one, while the exercise is worthwhile, I think in climates of increased systemic risk (and shorter boom-bust cycles), relying on linear relationships between too many variables is dangerous. 

 

Mr. Radcliffe's introduction of a 'timberland risk-premium' is useful, however. In that it adds a component to valuation that better encompasses economic conditions and targeted returns. This effort is clearly worthwhile. 

 

To close, equity and timberland investors alike should be familiar with the commonly used assumptions in determining an asset's range of values. Investors should also use caution when applying absolute certainty and confidence to models--even ones based on decent assumptions.

 

Plenty of investors across all asset classes deploy capital well without calculators and complicated models (simply staying on the sidelines when others chase prices; spending freely during panics and liquidity deserts).

 

Thanks again to Mr. Radcliffe at P&C for delving into a great subject!

http://www.prentissandcarlisle.com/

 

JDB

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Sam Radcliffe's curator insight, July 12, 2013 7:48 AM

One of several pieces in P&C's latest quarterly newsletter. I would be interested in reader feedback on the discount rate article.

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Pardee Resources sells 40K acres for $16.5M

Pardee Resources sells 40K acres for $16.5M | Risk-Adjusted Returns | Scoop.it

PRESS RELEASE

July 1, 2013, 11:51 a.m. EDT

Pardee Resources Company: Surface and Timber Sale July 1, 2013 

 

PHILADELPHIA, July 1, 2013 /PRNewswire via COMTEX/ -- Pardee Resources Company PDER 0.00% announced today that its subsidiary, Pardee & Curtin Realty LLC, recently closed on the sale of 39,945 acres of surface and timber located in Kanawha and Fayette Counties, West Virginia to Quercus West Virginia, LLC for $16,500,000.

SOURCE Pardee Resources Company

http://rt.prnewswire.com/rt.gif?NewsItemId=PH41158&Transmission_Id=201307011151PR_NEWS_USPR_____PH41158&DateId=20130701

Jack D Bridges's insight:

Pardee sells roughly 1/5th of its timberland holdings, for $412 an acre. No word about age-class or stocking for the acreage sold, but given the savvy seller (the Foulke family has owned and operated their company exceptionally well over 100+ years), it seems like a low price. Perhaps, the land was eased--or has something else constraining it's value to the buyer, Quercus West Virgina, LLC.

 

Quercus, or more specifically the man behind it, Billionaire David Gelbaum, is quite interesting. Why? Mr. Gelbaum devotes his great means to furthering a more considered, conservation minded capitalism.

 

https://www.dropbox.com/s/qsu8ja6q7l8owi1/You%E2%80%99d%20Never%20Know%20David%20Gelbaum%20Is%20a%20Sun%20King%20-%20NYTimes.pdf

 

He's also a visionary, highly disciplined solar investor--and I am loathe to ever use the term visionary lightly. It's his presence and reputation in the solar business that is the likely connection to the Foulke family, as Pardee's Renewable Energy Division has invested $15.1 million in new solar projects in 2012 alone. So, when Pardee sells timberland to a vehicle controlled by Mr. Gelbaum--this is not a former hedge fund manager low-balling a family business. No, Pardee selling to Quercus is a considered transaction that benefits buyer and seller alike.

 

Looking again at Pardee, it's worth noting, they had about $30 million in cash on their sheet at the end of 2012. We're two quarters into '13, assuming last year's net income YOY to be roughly equal at $8.5M for 6 months, let's say PDER had about $38.5 million in the bank before this asset sale. So, now Pardee has approximately $55 million in cash on hand--combined with a very interesting portfolio of hard assets. 

 

One wonders where Pardee will be putting this cash to work, as they typically make larger, very smart purchases every 3-4 years or so. Within the corpus of companies that I track closely, Pardee (ticker PDER) is one to watch.

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Who Buys Market-Tops?

Who Buys Market-Tops? | Risk-Adjusted Returns | Scoop.it
Jack D Bridges's insight:

The answer isn't as simple as the title suggests. Sadly, there are professional investors who HAVE to put money to work somewhere every single day, whether they want to, or not. 

 

Still, after such a forceful rally on the S&P, who is left to buy this market, and why would they? Using a few charts, some behavioral finance anecdotes, and horse sense, I'll make a case that this is not an equity market most want to wade into--no matter what your holding period, risk-tolerance, or investing experience.

 

http://screencast.com/t/Ku9jAjIzG8

 

First, let's consider where we were but six short months ago: SPY 1350. That's right. 300 S&P points lower. By most metrics (throw out the Fed model with Bernanke & QE, please), we're nowhere near an asset bubble yet, but looking at the chart, that's a huge move for such a short time frame. 

 

SPY 1660, or nearly 200 pts above the 200 DMA, is a great spot to lighten-up anything S&P correlated. Since I said the same thing about scaling out at SPY 1550, I would take another portion of risk out of portfolios and raise cash yet again. 

 

A few more charts that politely say, you might want to hit the sell button:

 

http://screencast.com/t/jlWpvmJ6qGuv

http://screencast.com/t/pCx5oOxi7I2u

http://screencast.com/t/unBDCooY062Y

 

To be fair, there are more than a few counter-points to why this especially loathed bull market isn't done yet. Today I talked to a money manager friend whom I respect as a savvy market observer. He pointed out how so many pros still hate equities, and most mom-and-pop investors are still allocating to bonds. His point: bull-markets usually die of euphoria, and we're a long way from that in a behavioral sense. I completely agree. 

 

My friend is also right in pointing out this final phase of bull markets is usually (tragically) signalled by amateurs or speculators jumping onto the bus just before it plunges over a cliff. 

 

http://www.scribd.com/doc/47554710/Grantham-Q4

 

See page 5 for a wonderful anecdote about Sir Isaac Newton running into this sad phenomena himself, several centuries ago. 

 

So, if I were forced to buy things tomorrow, what would I buy? In equities, I would short the Russell 2000 by buying TWM (2x leverage that re-sets daily, is quite enough). I'd buy shares of KEWL, which is cheap on an absolute basis, and an absolute steal on a relative basis to the timber REITs and Pope Resources (POPE); BP doesn't strike me as too expensive under $43, and I've been buying since about $38 (so has Seth Klarman at Baupost). CNIG is an idea from another friend of mine who tracks closely-helds, and it looks like a good long-term place to park capital. 

 

The real work at these heights is deciding what to sell--mainly, what sectors and individual names have detached from favorable risk / reward scenarios going forward. In 2007-8, I made a series of difficult decisions about what to sell: WFC, XOM, LEE, SYK, and a whole host of other names that my father (a far, far smarter investor than I'll ever be) bought and held for a long time. Considering the lurking dangers I saw all around the financial system, it seemed a great time to de-risk--and luckily, I turned out to be right.

 

Other than figuring out where and what to trim from portfolios, it always pays to actively research new ideas. 

 

For the most part, I've been reading institutional investor 13-F filings and making a shopping list--something that brings comfort to this frustrated value investor during times of fierce rallies, and not-so-cheap equity markets. After all, a fiduciary's work is never done. These are tough times for value investors--but I'd much rather 'miss' the last 5% of an up move, and catch a 15-20% correction with plenty of cash waiting for bargains. 

 

JDB

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Conservation Finance Aims to Profit from Environmental Stewardship

Conservation Finance Aims to Profit from Environmental Stewardship | Risk-Adjusted Returns | Scoop.it

EKO Asset Management Partners recently landed a big one. In January the New York–based investment management and advisory firm shared in a $53 million grant from Bloomberg Philanthropies that comes with a unique challenge: Figure out how investors can profit from helping to tackle chronic overfishing. Since 2012, EKO has been exploring ways of encouraging sustainability reforms to industrial and smaller-scale fisheries by luring private capital. Better management of the world’s fish stocks could grow their populations by more than half and boost yields by up to 40 percent, according to the journal Science.

 

Over the next two years, the Bloomberg funding will support EKO’s work with U.S. environmental groups Oceana and Rare to design and establish financing mechanisms that can help to improve fisheries practices in Brazil, Chile and the Philippines. The firm is one of a handful of financial institutions that are teaming up with nonprofits to pull investors into a nascent market known as conservation finance.
***
Devoted to investments that help preserve ecosystems for the long term, conservation finance sees about $10 billion in annual investment and spans sustainable timberland, agriculture and aquaculture; wastewater treatment; and freshwater protection, according to a January report by Credit Suisse Group, the World Wildlife Fund and consulting firm McKinsey & Co. To meet environmental needs the market must grow to 20 to 30 times its current size, or between $200 billion and $300 billion in annual investment, the report estimates. Assuming that philanthropic and government contributions at least double in the near term, its authors say the gap would close if every high-net-worth individual, retail investor and institutional investor dedicated 1 percent of their portfolios to conservation finance.

 

The market’s multifariousness has held it back, acknowledges John Tobin, Credit Suisse’s Zurich-based global head of sustainability and a co-author of the report. “That doesn’t mean there can’t be investable and very profitable products in the area of conservation finance,” says Tobin, who calls for more thinking on the subject. “Protecting species and supporting protected areas has been a philanthropic endeavor until now. I don’t think many people have approached the topic saying, ‘Hmm, environmental conservation: There’s money to be made here.’”


Via Sam Radcliffe
Jack D Bridges's insight:

Another gem of a find from Mr. Sam Radcliffe--thanks, Sam! (http://www.prentissandcarlisle.com/).

 

In the financial world, nothing is more annoying than 'talking one's book' (touting one's investments, in the parlance of our times). So, I'll try not to be a hypocrite. But, conservation finance is an important topic for investors. And, it will only grow in importance as environmental markets continue to attract more capital. Why? 

 

For investors, it matters because there is indeed money to be made--solid, risk-adjusted returns, in fact. For people who value ethics and integrity it matters even more, because at the very least they want their investments to try and avoid the least desirable outcomes of capitalism. 

 

While my experience within conservation finance cannot be measured in decades, I've been lucky to learn from some very smart figures in the field (www.sustainableresourcefund.com). For all of my reading and discussions with far brighter people, it boils down to this: 

 

It's not just possible to combine value investing and traditional market based models with sustainable, ethical businesses. It's imperative. Essential. Indeed, the attitude that suggests otherwise is one of the biggest hurdles impeding the growth of the marketplace.

 

Let me close with this: It is not easy to find investments that offer inefficient markets, great risk-return profiles, within an ethical framework. But, at least for this writer, it's easy to see the promise that lies ahead for environmental markets and assets.

 

In the future, I hope to post an interview with an expert or two on the subject--so stay tuned, please.

JDB

 

Thanks again, Sam, for finding the article!

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1987 Berkshire Letter and Buffett's Thoughts on High ROE | Base Hit Investing

1987 Berkshire Letter and Buffett's Thoughts on High ROE | Base Hit Investing | Risk-Adjusted Returns | Scoop.it
I look at Berkshire Hathaway's 1987 Shareholder Letter where Warren Buffett discusses a Fortune study of high Return on Equity Businesses.
Jack D Bridges's insight:

Fantastic read on different value investing styles--and how the market typically 'mis-prices' boring businesses in the short-term, only to reward investors with reasonable holding periods. Thanks to Mr. Huber at www.basehitinvesting.com

Highly recommended!

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Its Trees May Grow to the Sky, but Not Its Stock

Its Trees May Grow to the Sky, but Not Its Stock | Risk-Adjusted Returns | Scoop.it
REIT Plum Creek Timber offers a hefty 4% dividend yield to investors. But the shares are rich and it's reaching further aground to find earnings. Are the shares about to fall?
Jack D Bridges's insight:

In a market where Twitter shares trade near $70 (let's assume a triple-digit forward PE...sounds safe), and investors accept near mythological valuations, calling Plum 20% overvalued is kind of funny. 

 

Why? Two reasons.

 

One, people like Mr. Chip Dillon (a veteran industry analyst) are always saying PCL is over-valued. Always. When you consider that investors who require liquidity do not have a great set of choices to invest in the asset class, it creates a market with unique dynamics. How? Fund managers in the space (and many REIT funds who know nothing about the timber business) HAVE to own and buy more shares of PCL--overvalued or not. In other words, the market for PCL is, well, just the market.

 

Two, consider the fallibilty of equity analysts. And, more specifically, Mr. Chip Dillon's forecasting record.

 

Read the article below, and note his comments in 2009. 

 

http://online.wsj.com/news/articles/SB124969600764816273

 

Timberland investing does not attract the top-chasing tech crowd. So, to get bearish on the asset class at the bottom of the market is patently ridiculous. For anyone who understands the virtues of timberland, there is a margin of safety that makes it unique among long-term investors. But , back to PCL and its valuation....

 

Still think Plum Creek is that over-valued, based on a simple sum-of-parts valuation and their constant tweaking of their 6M plus acre portfolio? Maybe. But, it depends on the assumptions one makes going forward-- about any number of factors (US housing market health; housing starts, US log prices in the South; how over-valued US equities are, etc.).

 

To conclude, Barron's could have found far more incisive opinions on why to avoid Plum Creek shares.

 

When something like PCL is correlated to the S&P (unlike pure timber investments), it doesn't take a genius to suggest that its price will fall along with the broader market. And I'm sorry, but interest rate risk, non-core cash flow, and lumber pricing comments from an unknown CIO in Connecticut just don't cut it here. 

 

If there is a dip from this thin bit of analysis, I'd get interested in PCL at around $42 (about 10% lower). 

 

JDB

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2014 webinars from University of Minnesota

2014 webinars from University of Minnesota | Risk-Adjusted Returns | Scoop.it

REITs, TIMOs, and changing industrial forestry

Tuesday, January 21 from 9:00-10:00am

How has industrial forestry changed because of the shift in corporate structure? Minnesota industrial forests have seen a large turnover in ownerships in recent years with investment companies purchasing large tracts of Minnesota forestlands. This webinar will and how industrial forestry has changed because of the shift in corporate structure. Samuel J. Radcliffe will explain the changes in ownership and the difference between real estate investment trusts (REITs) and timber investment management organizations (TIMOs).


Speaker:  Samuel J. Radcliffe, Prentiss & Carlisle Management Company


Via Sam Radcliffe
Jack D Bridges's insight:

This will be my first U of Minnesota webinar--and it should be a good one. Put Jan 21 at 9am on the calendar, and get ready to learn! 

This won't be on the agenda, but here is one subject I would ask about: How CALPERs expects to manage a $2B timberland portfolio with a part-time employee? Is it any wonder their performance numbers are lousy (and their portfolio construction seems, well, very Bush-league, considering their over-allocation to the US South).

 

If I could construct a model showing buying $2B worth of Plum Creek which is also heavily weighted below the Mason Dixon (and collecting the 3%+ dividend) versus their returns net of fees, it would be an interesting comparison. The conclusion: There are far better ways to invest in timberland, especially for such a massive buy-side institution.

 

Anyway, please listen in to Mr. Radcliffe's talk on January 21st. It will be an hour well spent. 

JDB

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Sam Radcliffe's curator insight, December 14, 2013 4:03 AM

Sorry for the shameless promotion ;-)


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Some nuggets from Rayonier's Q3 2013 Earnings Call Transcript

Some nuggets from Rayonier's Q3 2013 Earnings Call Transcript | Risk-Adjusted Returns | Scoop.it

Rayonier Inc. (RYN) Q3 2013 Earnings Conference Call October 24, 2013 2:00 PM ET

 

Mark Wilde - Deutsche Bank

Okay, and then just one other question Lynn. I know that you guys have been working on trying to develop more log export business out of the southern U.S. Can you just give us an update on kind of where that’s at and how you think that may develop over the next couple of years?

 

Lynn Wilson - Senior Vice President, U.S. Forest Resources
So, one of the things that we continue to do is to test those markets. So right now we have seen that our log export opportunities on the Atlantic port and in the Gulf port have been modest. We’ve all been container so far, no break box or free hold as we have in our Pacific Northwest operations and so that shipping cost is the break point for us.

So right now our domestic markets are better timber margin, but we are continuing to test it, continuing to have a small volume and we are continuing to work with opportunities that would increase that net timber margin.

***
Paul Quinn - RBC Capital
Okay. Thanks very much and then just lastly, just on the timberland side, what do you see in those timberland market? It seems like that market has heated up quite a bit and very challenging and competitive out there. Maybe you could just share some of the color that you are seeing in your market place close to your timberlands and whether you guys have experienced this same sort of issues.

 

Paul Boynton - President & Chief Executive Officer
Yes. We think valuations are holding well and obviously continuing to improve and increase and we think that’s good. On the acquisition side, you know just year-to-date we probably looked at almost the same amount of property that we looked at a year ago, so there’s still pretty robust availability of timberland our there. I think if there was any change, there would have probably been two. I think we see plenty of dollars going after that availability.

 

So we definitely see that out there and we are seeing a little bit, at least this year, unless that fits our investment criteria. So for example I think this year-to-date, we probably evaluated 40 different properties. I mean we’ve offered on seven of those, which would have been lower that we where last year in terms of our percentage. And we’ve actually only acquired three small properties; about 12 million and that’s obviously separate from our New Zealand acquisition of 140.

 

So again, that would tell us that it’s at least not a sitting for our portfolio as maybe some others. It also tells us again it’s a pretty robust market in terms of timber and timberland values and that we also very disciplined.

The last three years we put out there and invested over $700 million and that includes the New Zealand acquisition and we can see the return on those investments and we feel very good about those returns and those investment. So we think our strategy is right on and this nature of that strategy is right on. It just takes a while and a lot of evaluation out there before you can bring them on in.
***
Collin Mings - Raymond James
Okay, alright, thanks Lynn. And then just some of your peers have recently discussed the potential to work with some institutional timberland owners, but are kind of unhappy with the TMO model. So I was just kind of curious as far as how you guys are thinking about potential JV partnerships as it related to timberland opportunities. I know you guys already touched a little bit on the acquisition environment, but just from that [angle] I’ll be curious of your thoughts.

 

Paul Boynton - President & Chief Executive Officer
Well, I think we have a great JV in New Zealand right now, so we’re obviously working to really maximize that one and while here in the States we’re not really too actively searching for that opportunity.

 


Via Sam Radcliffe
Jack D Bridges's insight:

Another good find from S. Radcliffe (http://www.prentissandcarlisle.com/)

 

Rayonier took an absolute beating after releasing their recent quarter. Why? On the surface, looking at the things Wall Street cares about quarter-to-quarter, RYN missed expectations by .02 on the bottom line, and missed on the top line by a much larger 10% (expected revenue was $422M; RYN delivered $382M). For a such a long-cycle business, that alone wouldn't scare investors.

 

So, why the huge sell-off? Mr. Levinsohn, of Barron's, explains in rather good detail here: http://blogs.barrons.com/stockstowatchtoday/2013/10/25/everybody-hates-rayonier-shares-fall-15-on-earnings-miss-multiple-downgrades/?mod=yahoobarrons&ru=yahoo

 

When the one segment of your business that convinces investors you deserve a premium valuation--in Rayonier's case, cellose specialties--flashes a margin warning, that makes investors more than nervous. It makes them take profits:

http://stockcharts.com/h-sc/ui

 

At some point, investors looking for yield who don't know much--and aren't concerned with--about how Rayonier truly earns its net cash, will pile back into RYN. To these people, this is a buying opportunity--and it might be. To this observer, given the current valuation of the broader equity market and REIT segment--this isn't a time to be aggressive. This is the time to watch and wait--and watching RYN's cellulose specialties business for a quarter or two first, is a decent idea. 

JDB

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Sam Radcliffe's curator insight, October 28, 2013 6:17 AM

Also mentioned was a 21,000 acre sale of timberland in Georgia that closed on the day of the call.

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TDFKABRM: How Brazil's Richest Man Lost $34.5 Billion

TDFKABRM: How Brazil's Richest Man Lost $34.5 Billion | Risk-Adjusted Returns | Scoop.it
Formerly the world’s eighth-richest man, Eike Batista lost his fortune in one year
Jack D Bridges's insight:

As Mark Twain once said, "Truth is stranger than fiction." 

This applies to the unbelievable, almost mythologic downfall of Eike Batista, as chronicled by Bloomberg writers J.P Spinetto, P. Millard, and K. Wells.

 

Leaving aside the story's place in the pantheon of historic failures, I'd like to focus on a few lessons from the saga of the dude formerly known as Brazil's richest man (Or, TDFKABRM).

 

What can be learned from a man who lost $34.5 Billion dollars?

 

1) Arrogance and leverage are not only dangerous, they are the seeds of total destruction in finance. Harry Macklowe comes to mind:

http://tinyurl.com/kmex87h

 

So, too, does Dick Fuld--the man who's myopic megalomania laid low the mighty house of Lehman Brothers. To read about Fuld and the Financial Crisis, here are some good sources:

http://tinyurl.com/p8c8ay

http://tinyurl.com/o74fx5

 

 

Getting back to Eike B., he is clearly not the first to fall prey to these perils (nor will he be the last). But, the scale of his empire's collapse is incredible.

 

Some might say, well, surely the calamity wasn't solely his fault or design. Perhaps. And then one looks at the deeply flawed capital structure of OGX, its microscopic layer of equity, and such attempts to exonerate Batista look foolish. 

 

Furthermore, leaving aside the cap. strutcure, consider the following: the fickle nature of commodity markets, Brazil's economic structure and history; the country's reliance on a black-box Chinese economy--which, on the margin, drives global demand for many commodities. The only surprise within this volatile matrix was the speed of Batista's crash.

 

2) Have a margin of safety

Look at the roster of believers in Batista's OGX--Blackrock, PIMCO, The Ontario Teachers' Pension Plan, Exxon-Mobil, and The Ziff Brothers of NYC (they're still billionaires, I belive). And, these are just the guys who bought the equity and debt of OGX (EBX and MMX were the other, non-oil pieces of Batista's commodity dream).

 

With such well-heeled backers, what kinds of assumptions were these pools of capital making about OGX? Did they do any due dilligence, independent of what Batista was disclosing to investors?

Furthermore, if one simply sees the prices OGX paid for the off-shore leases (nevermind the basin's reserves were never independently verified at the time), one thing jumps out: They NEVER had a margin of safety. Ever. The odds of over-payment from day one for OGX seem irrationally high, as the Businessweek authors highlight very well. 

 

3) Invest with people you trust

This isn't always possible for massive institutional investors, or big companies in general. But, it does well to learn about who is making the investment decisions at the companies one invests in. Seriously. Eike Batista might throw a good party (sure looks like he threw more than a few), but the flash and the 24/7 salesmanship are two "qualities" that raise red-flags. They certainly should have for those who are now stuck with "tax deferred assets," as a result of their investment in OGX, EBX, or MMX. 

 

This business is humbling. In order to maintain a sense of humility, it's important to stop and take time to learn from the mistakes of others (as well as our own). And, Mr. Batista's tragic fall makes for an excellent opportunity to do just that.

 

JDB

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Plum Creek's Pep Rally...

Plum Creek's Pep Rally... | Risk-Adjusted Returns | Scoop.it
Jack D Bridges's insight:

Here is the short version from Plum's Investor Day in NYC:

 

1) PCL really, really likes the US South. This has been clear for the last 8 quaters+, based on all the capital they've deployed there (aggregate & fiber deals, timberland & deed purchases, etc.). 

Why? This leads to bullet point number two.

 

2) Plum believes Southern sawlog prices (across most wood baskets) are poised to rise significantly. They give 3 reasons for this--a continued rebound in US demand, continued Chinese / offshore demand, and constrained Canadian supply (pine beetle damage).

 

Underpinning this belief is the aggressive assumption that US housing starts will dance back to 1.5M units, and household formation will also rebound to pre-recession levels. Safe, conservative assumptions? Not so much...and I'd love to have some of what they're smoking. I'm from the school of crazy people who believe that deferred supply (especially in the US south) will keep a reasonable lid on US prices--no matter what the Fed does. Obviously, this is not the Plum Creek party line.

 

According to one executive, "Now I'm going to go ahead and address the sawlog price cynics in the South who are going to tell there's a big inventory overhang out in the field, therefore, it's going to be depress prices. I mean, I know some of your going to try and ask that question later and I'm going to stop you right now."

 

Thanks, buddy!

 

3) The most important bit from any Plum Creek presentation is always how such a big player sees the timberland marketplace--because they're always in it, and frequently on both sides of it, across every single region. Truly. Does PCL think there is another huge WY size deal in the pipeline? (WY recently bought Brookfield-owned Longview Timber for a puny $2.6B)  Not really. To wit:

 

"We expect as the TIMOs continue to mature and reposition some of their portfolios, there will be more transactions coming into the marketplace. But we don't see a lot of the very large mega transactions, the billion-dollar plus. What we anticipate is the $50 million to $200 million type transactions. Proportions of the portfolio are brought out into the marketplace, and that seems to be kind of the sweet spot for a majority of the deals that we've seen and possibly because it's very easy to access. TIMOs can raise moneys for that type of transaction."

 

Very helpful. 

 

The same executive continued on...

 

"TIMOs now control about 30 million acres. So as we think about where those opportunities might reside, we clearly are interested in how that institutional ownership will evolve over time. And we believe that at Plum Creek, with our strong balance sheet, our operating efficiencies and effectiveness and our history of creating value, there's probably opportunities to work with those institutions as they think about how to reposition the portfolios or potentially create liquidity. So we're very bullish overall on the U.S. timber markets, and we will continue to acquire timber and add to our portfolio in the cash accretive and value-added way."

 

There you have it--Plum Creek's next likely target acquisitions (or possibly a joint venture) will come from TIMOs in the US south--probably ones with large pension fund clients looking to divest. Not an earth-shattering revelation, but it does help one appraise the future of the market in the US south a bit. 

 

That's it from me. For those who wish to read the transcript of the event, here it is:

http://seekingalpha.com/article/1723592-plum-creek-timber-co-inc-shareholder-analyst-call?part=single

 

The webcast is available from PCL's Investor relations site, here:

http://www.media-server.com/m/acs/b59f897e40e26b0cc90ad477688ce9df

 

And, here is the PDF version of the presentation with the slides, and pretty lame photos (they should have better art for all the free-cash flow):

 

http://phx.corporate-ir.net/External.File?t=1&item=VHlwZT0yfFBhcmVudElEPTUwMTc4NTF8Q2hpbGRJRD01MjAyMzc=

 

Enjoy!

JDB

 

Disclaimer: I have no personal position in PCL or WY, though I have bought shares in both equities for friends, family, and people who have no other way to gain exposure to the asset class. 

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Ecotrust's Forestry Fund Profits On Woodlands - Penta Daily - Barrons.com

Ecotrust's Forestry Fund Profits On Woodlands - Penta Daily - Barrons.com | Risk-Adjusted Returns | Scoop.it
The unusual forestry fund boosts returns by tapping federal subsidies and selling conservation easements.
Jack D Bridges's insight:

Remember the name Ecotrust: You'll be hearing a lot more from that shop in the future. EFM has a great investment philosophy--with very sharp, top-notch people. 

 

As with any sustainable forestry fund, the main driver of IRR stems from prudent management--and biology. Once a property is acquired (often with tax credits and/or other forms of low cost financing), the forest is usually certified through FSC or SFI, at which point the manager can then pursue conservation easements--or other ways to unlock the conservation value inherent in the asset. 

 

This process of certification is not done overnight--and conservation easements often take years to pull together in various phases. In other words, these are areas where funds like Ecotrust and Lyme Timber draw upon their unique expertise-- and earn their management fees.

 

While there are a lot of TIMOs out there, Ecotrust has some distinct advantages: a focused, attractive marketplace (Pacific Northwest) , nimble size (EFM II's target is $75M), low-cost of capital, and significant anchor investors. 

 

I'm far from an authority on conservation finance--but for CIOs searching for solid risk-adjusted returns, Ecotrust deserves a serious look. 

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Druckenmiller Says Fed Exit Would Be Big Deal for Markets

Druckenmiller Says Fed Exit Would Be Big Deal for Markets | Risk-Adjusted Returns | Scoop.it
Stanley Druckenmiller, who boasts one of the hedge-fund industry’s best long-term track records of the past three decades, said it would be a “big deal” for financial markets if the Federal Reserve were to completely end its asset purchases as...
Jack D Bridges's insight:

While the insight about the Fed is a gigantic "Duh!" there is one important take away from this interview with Stan Druckenmiller: He's largely sitting and holding off on deploying capital right now. 

 

For those not familiar with S. Druckenmiller's CV, that is a striking statement. Here is a guy who, when he has conviction, takes enormous positions and pushes his convictions to their very limits--often reaping some of the most consistent wins across asset classes. 30% annual returns (which when you adjust for risk, probably loses some of its awe inspiring lustre) over that time-frame is ridiculously good.

 

A lot of equally savvy investors are doing much the same right now. Leon Black of Apollo went risk off a few months back. Not to mention Seth Klarman--who has also spoken about a dearth of attractive equity investments over the last few years (which explains why Baupost has moved into other less efficient, less crowded markets & asset classes). 

 

When someone like S. Druckenmiller speaks, it's worth taking note. I've sounded like a broken record lately, but as we enter the final quarter of 2013, it's a great time to start building cash-reserves. 

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Killjoys sleep better at night...

Killjoys sleep better at night... | Risk-Adjusted Returns | Scoop.it
Jack D Bridges's insight:

With the equity markets at all-time-highs, it's important to block out the mindlessly optimistic chatter for a moment, and glance back at history: 

 

http://www.pbs.org/wgbh/americanexperience/films/crash/player/

 

This exercise brands me a killjoy, for sure. "Why can't you just be happy and cheer the stock market rally like everyone else?" I have a simple answer--for people who actually work in markets and study them, we've seen this before. It rarely, if ever, ends well. 

 

For me, it boils down to three things: risk, trust, and opportunity. Frequent extraordinary Fed intervention in our economy (ZIRP+ QE, 1, 2, 3...), continues to skew the "normal" process of capital allocation. In other words, artificially inflating asset prices carries potent risks--and leaving aside currently reasonable inflation expectations, continued QE seriously warps market discipline. In this environment, focusing on risk is a lonely business--but it sure beats over-paying for assets.

 

Trust is more complicated to explain. While we don't have 10-to-1 leverage for retail investors anymore (as we did in 1929) the commoditization of stocks is far worse in today's market. In fact, it's not even close. Instead of fractional shares of a business, high speed algorithms (predatory HFT, and not), ping shares of companies back and forth thousands of times before you can blink. (For a deeper look at market structure, or lack of it, please see: https://twitter.com/nanexllc). Due to low transaction costs, the average holding period for traders and "investors" alike has never been shorter. 

 

This frightening speed and lack of long-term capital, combined with the fragile structure of the system (think 2010 flash crash), doesn't breed confidence; it breeds doubt and more often, instability.

 

Sadly, these various trading strategies (many of which pick the pockets of slower moving, buy-side money), are probably The Street's last free lunch. Look at the shriveled IPO market; the 8 people left still working on the NSYE floor; the sagging volumes across US stock markets. With the S&P and other indexes at record highs, where is the trust? Not here. 

 

Finally, a word about opportunity. Most investors have little choice but to take the plunge into listed, common equities--no matter what the risks. In the world of QE, what's the alternative? Over-paying for bonds? Unless you have access to a top sales desk, that's even more asinine than buying Tesla (TSLA) at $120: 

 

http://stockcharts.com/freecharts/gallery.html?tsla

 

No, finding equity investments with a suitable margin of safety in this market isn't easy, but it is possible. If one is able to sacrifice liquidity, the discount in true NAV in many closely held securities is one area to explore. 

 

For those in need of liquidity across an entire portfolio, I would watch, or better yet read, The Great Crash of 1929. What you might lose in future returns by keeping a bigger cash buffer, you'll gain in many a better night's sleep.

JDB

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Rescooped by Jack D Bridges from Timberland Investment
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Private Equity Timber Fundraising Targets $3 Billion

Private Equity Timber Fundraising Targets $3 Billion | Risk-Adjusted Returns | Scoop.it

According to Preqin's Funds in Market product there are 11 private equity timber funds currently raising capital. These funds are collectively targeting approximately $3bn in capital commitments. Of the 11 timber funds currently in market, six have held at least one interim close, having raised an aggregate $776mn in capital commitments so far. The average target size for timber funds in market is currently $408mn.

 

Of all the funds currently in market, six primarily focus on North America, collectively targeting almost $1.4bn and representing 47% of the total capital targeted. Three timber funds aiming to raise an aggregate $1.3bn are targeting investment opportunities outside of North America, Europe and Asia.

 

The largest Timber fund currently in market is Australia New Zealand Forest Fund 2 managed by New Forests. The fund, which is seeking AUD 800mn, held a first close in June 2013 with commitments totalling AUD 507mn. Australia New Zealand Forest Fund 2 invests in forestry and environmental assets in Australia and New Zealand.

 

The second largest timber fund in market by capital sought is Brookfield Timberlands Fund V. The fund managed by Brookfield Asset

Management is targeting an aggregate $750mn for investment in timberland assets, primarily in the US, Brazil and Australia, but will also target opportunities in Canada, Chile, New Zealand and Uruguay.

 

The only timber private equity fund to have held a final close so far in 2013 is Brookfield Brazil Timber Fund II. The fund focuses on timber investment in Brazil and closed above its $200mn target having raised a total of $270mn in capital commitments.

 

In 2012, only three timber funds reached a final close having raised an aggregate $500mn in investor capital. Timber fundraising reached a peak in 2008, with five vehicles reaching a final close, having raised $2.9bn in commitments.


Via Sam Radcliffe
Jack D Bridges's insight:

Nothing much to add to the above--though, I agree with Mr. Radcliffe. The demand dynamics for forest properties remain "healthy" to say the least.

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Sam Radcliffe's curator insight, July 3, 2013 12:02 PM

The demand for timber properties continues to outpace the supply...

Rescooped by Jack D Bridges from Timberland Investment
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Weyerhaeuser adds some color on Longview acquisition


Via Sam Radcliffe
Jack D Bridges's insight:

To an outside observer, $4k/acre seems like a heavy price to pay--no matter how great the age-class, stocking, or "front-loaded" Douglas-Fir export harvest. That said, much of the 645K acres fits well with WY's current holdings (creating efficiencies), not to mention the array of HBU options (I'm guessing zero acres are constrained by conservation easements, but I have no clue). Weyerhaeuser also neglected to talk about other revenue streams for the Longivew acreage, such as easement sales, and potential for carbon credits.

 

On its face, buying such a massive concern at a time when most asset prices aren't cheap AND global growth waning, has risks. From a broad timing perspective, I'm skeptical. However, since WY is likely divesting WRECO--or selling its home building division at a favorable time, and  issuing equity/debt to fund the purchase--the structure of the transaction looks smart. The fact that WY is raising its dividend speaks to management's confidence (or, what REIT investors demand...but that's a topic for another post).

 

I'll leave a deeper analysis of the deal to folks with more knowledge of the former Longview assets. For equity investors, the deal will take some time to assess. I have no position in WY anymore--I was fortunate to purchase shares for people between $17-18, and thought WY equity was expensive over $30 (where I sold). 

 

Many thanks to Sam Radcliffe of the formidable P&C (http://www.prentissandcarlisle.com/) for scooping the WY investor presentation!

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