Forget about sophisticated financial products. Forget about CDOs, especially if they include (God forbid!) MBS. Investors are going back to basics.
In the time when the allegedly absolute-returns Hedge Funds are making headlines with big drawdowns, and the Private Equity firms cannot figure out how to make a buyout with no credit lines available in the banks they had been dealing with for decades, what does it leave a sophisticated investor with to invest into?
It comes down to the Real Assets. One of the most popular (at least as a topic of conversation) investments of this sort is Timberland Investment. The beauty of it is that once the tree is planted, it grows without any other cash expenses. All that investor has to do is to make a decision on when and how much of the forest should be cut to sell the timberland and get returns.
Timberland investments a long-term, typically over 10 years, and thus fairly illiquid, and compared to Private Equity, for instance, they generate lower returns. But they are also much more stable, and in principle there is no J-curve. And if this is not the right risk/return profile, investors may choose to buy into the emerging markets, say Indonesia or Mozambique, if they have the guts. But then there is a scale problem, because about 70% of the investable forestland is located in the US.
No fan of wilderness? Try agriculture. Agrifunds are not as widespread as timberland (not that every investor is into timberland, but it is still fairly common in the US and Europe), pick what you want to grow, and there you go! This asset is however riskier than timberland, as a hurricane or pests can easily destroy the whole harvest. But there are some fans. Middle Eastern funds, for instance, are buying arable land all across Asia. Although, their interest is not a purely commercial one - they need access to food products for their growing populations, thriving on oil, but living among arid wastelands.
To put it short, anything's good that you can see, feel and smell (and get returns from, so forget about the Real Estate for a while). Primitive though may it seem, I find this sort of investments much better than all the abbreviations the Wall Street gave us in the recent years. CDOs, MBS or any of the likes.
In the time when the allegedly absolute-returns Hedge Funds are making headlines with big drawdowns, and the Private Equity firms cannot figure out how to make a buyout with no credit lines available in the banks they had been dealing with for decades, what does it leave a sophisticated investor with to invest into?
It comes down to the Real Assets. One of the most popular (at least as a topic of conversation) investments of this sort is Timberland Investment. The beauty of it is that once the tree is planted, it grows without any other cash expenses. All that investor has to do is to make a decision on when and how much of the forest should be cut to sell the timberland and get returns.
Timberland investments a long-term, typically over 10 years, and thus fairly illiquid, and compared to Private Equity, for instance, they generate lower returns. But they are also much more stable, and in principle there is no J-curve. And if this is not the right risk/return profile, investors may choose to buy into the emerging markets, say Indonesia or Mozambique, if they have the guts. But then there is a scale problem, because about 70% of the investable forestland is located in the US.
No fan of wilderness? Try agriculture. Agrifunds are not as widespread as timberland (not that every investor is into timberland, but it is still fairly common in the US and Europe), pick what you want to grow, and there you go! This asset is however riskier than timberland, as a hurricane or pests can easily destroy the whole harvest. But there are some fans. Middle Eastern funds, for instance, are buying arable land all across Asia. Although, their interest is not a purely commercial one - they need access to food products for their growing populations, thriving on oil, but living among arid wastelands.
To put it short, anything's good that you can see, feel and smell (and get returns from, so forget about the Real Estate for a while). Primitive though may it seem, I find this sort of investments much better than all the abbreviations the Wall Street gave us in the recent years. CDOs, MBS or any of the likes.
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