Money does grow on trees when you invest in forestry

<!--StartFragment--> DESPITE its move into the mainstream over the past decade, green investing still evokes a faint whiff of something slightly fringe and unprofitable. But this is changing, albeit at a slower pace than those in the sector would like. Forget hippies ranting about global warming and rainforest destruction, these days green professionals are sharp-suited City traders with plenty of market experience and good business sense.<br /><br />In today&rsquo;s volatile markets, those who are interested in a longer-term investment, such as institutional and private investors looking for assets that are largely decorrelated from the fortunes of the stock markets, the wide range of green funds are definitely worth a look. These investments, which can range from trees to agriculture and solar energy, might soothe your conscience, but they can also deliver returns.<br /><br />While they might once have raised an eyebrow in the City, the new generation of eco-friendly schemes are taken seriously. In recent years green fund managers have realised that they need to have the same sort of high-tech technology as those in more conventional areas. Rufus Warner, chief executive officer of recently established Earth Capital Partners, (ECP) which will launch two funds aimed at institutional investors next month, says: &ldquo;You have to have proper infrastructure, especially if you are selling something that is considered rather fringe. We have developed an institutional quality asset management platform to meet our clients&rsquo; needs.&rdquo; Moves like this have helped convince the hard-headed types in the trading community that people in this industry are not tree-huggers, but serious professionals.<br /><br /> <!--StartFragment--> <strong>TRULY SUSTAINABLE</strong><br />The key for green funds is selecting the projects that they get involved with, and to ensure that they are truly sustainable and can be profitable. For example, ECP&rsquo;s renewable energy fund will focus on developing new projects in Europe and the Middle East in the solar and waste-to-energy sectors, while the second fund will concentrate on new sustainable agriculture projects in Brazil and Australia.<br /><br />To assess the projects&rsquo; sustainability, ECP have developed an earth dividend, which it uses to measure their non-financial returns. The stringent sustainability criteria &ndash; considered separately from the financial criteria &ndash; improve the chance of success and mitigate the risk of the project. ECP also say that they are working closely with local partners, especially in sustainable agriculture projects.<br /><br />&ldquo;It&rsquo;s important to be sensitive about land &ndash; we cannot appear like foreigners and we do everything we can to mitigate the feeling that ECP is foreign, including having local people on your payroll and trying to raise local investment in the fund,&rdquo; the company says.<br /><br />But Rufus Warner and colleague Ben Cotton, a partner at ECP, are not in the green investing business purely to solve the planet&rsquo;s environmental problems.<br /><br />&ldquo;We have to generate investment returns but sustainability gives us a second pair of eyes. We actually think it will enhance the returns, which was a surprise to us. The traditional wisdom was that if you invested in green energy you would have to accept lower returns, but this is not the case,&rdquo; says Cotton. He explains that the projects with the best long-term prospects and the best chance of making a profit are those that have already accepted the need to act sustainably.<br /><br /> <!--StartFragment--> <strong>RENEWABLE ENERGY</strong><br />ECP is targeting returns of 12 per cent per annum for the renewable energy fund over the life of the fund and expects about 10 per cent return per year for its sustainable agriculture fund. The funds are aimed at institutions like pension funds and in the future potentially at high net worth managers at private banks.<br /><br />Private investors looking for long-term green investing opportunities can also access equally profitable returns by buying into tropical timber. One of the biggest sustainable development issues threatening the environment at the moment is the mass destruction of the rainforest by business but an increasing number of companies out there are offering experienced, high net worth investors opportunities to buy plots of trees and reap the returns once they have grown.<br /><br />UK-based New Forests Company has established plantations in Uganda and Mozambique with the prospect of a sawmill and energy-forestry operations and another company, Oxigen Investments, also British-based, lets investors buy a block of trees to be grown in a tropical plantation for a minimum investment of &pound;10,000.<br /><br />The company concentrates on just two types of tree: agarwood and teak. The former is said to be the most expensive wood in the world and is fairly resistant to any changes in the market. It grows in about six years and the internal rate of return (IRR) over this period are 23.58 per cent, assuming the minimum investment of &pound;10,000. Teak requires much more patience &ndash; it takes about 20 years to grow &ndash; but the IRR is equally attractive at 21.30 per cent.<br /><br />The global timber market has been well supported by high demand, especially in the Far East. But if the timber market were to collapse in the future, you can postpone the felling of your trees until the market recovers. Such flexibility in times of market trouble would be impossible with traditional stocks investing.<br /><br /> <!--StartFragment--> <strong>PORTFOLIO DIVERSIFICATION</strong><br />While the time-frame that trees require might seem too long-term for many, Oxigen&rsquo;s John Fryer points out that these investments can be held in SIPPs and child trust funds, which are ideal for such a length of investment.<br /><br />If you want to diversify your portfolio, investors can also consider agroforestry &ndash; the growing of trees and crops on the same piece of land in order to achieve maximum benefits and efficient land use. The annual income return on such an investment is estimated to be about of 8 per cent.<br /><br />Oxigen is also moving into the green forestry fund space with its global open-ended investment fund to be launched at the start of September and is aimed at the private investor.<br /><br />Green investing is far from fringe and the targeted rates of return makes green investing a viable and eco-friendly alternative to the ups and downs of investing in the stock market. You won&rsquo;t be seeing a return on your investments tomorrow, but the world is becoming an ever greener place and sustainable investment will be increasingly profitable.<br /><br /> <!--StartFragment--> <strong>FORESTRY AGARWOOD AND TEAK</strong><br />The aquilaria tree matures in four to six years and is special for its resinous heartwood, known as <strong>agarwood</strong>, which has been traded for centuries.<br /><br />The resinous wood is used for incense, as well as medicinal purposes, and the pure resin in its distilled form goes into perfume.By the early 1990s the aquilaria tree had been harvested to near extinction in south-east Asia. Investing in tropical forest plantations can help make harvesting this precious wood sustainable.<br /><br />One of the tropical hardwood birches, the <strong>teak tree</strong>, is well known for its strength and resilience to even the most extreme weather conditions.<br /><br />The teak tree has also suffered from deforestation but continued demand for the wood has seen its price rise steadily. Bans on logging has meant that there has been an expansion of teak produced on plantations, particularly in Sri Lanka.<br /><br />Teak from Sri Lanka is ready for harvest after about 15 to 18 years but the process of pruning and thinning the timber will produce an extra source of income for investors while the tree is growing and you are waiting for your return.<br /><br /> <!--StartFragment--> <strong><strong>ALTERNATIVE INVESTMENTS BEYOND GREEN PROJECTS</strong></strong><br />It is not just green investments that offer returns largely decorrelated from the fortunes of the stock market. Here are some other alternative investments you could consider.<br /><br />Property may not have done well of late but one area that can be profitable is <strong>ground rent funds</strong>. Ground rents are not dependent on property prices and provide a regular stream of income. AIM-listed Braemar Group recently launched its offering.<br /><br /><strong>Senior life settlement funds</strong> are a growing investment opportunity in the EU &ndash; they have been big in the US for some time. The market is now worth about $13bn. These funds avoid the cyclical and economic risk with which more conventionally popular securities have been associated. Providers of such funds include Catalyst Investment Group and Meteor Asset Management.<br /><br /><strong>Hedge funds and venture capital</strong> are also classified as alternative investments.<br /><br />But fine wines, art and antiques and stamps are illiquid and subject to bubbles, so proceed carefully.&nbsp; <!--EndFragment-->