Fourth Irish Forestry Fund closes today
Today is the closing date for anyone interested in investing in the fourth Irish Forestry Fund plc - the third fund raised £1.5 million last year and was heavily oversubscribed. The same amount is being sought to purchase land (a minimum of 750 acres) for this latest fund. But before any hasty decisions are made about this or other forestry investment offers, investors need to bear in mind a number of issues.
Forestry development has been encouraged by the special tax-free status of these investments, and several tree-growing companies operate in Ireland, where the proportion of forested land is quite low by international standards, but growing conditions are ideal.
Some of the operations are strictly investment companies which sell shares in a company - like this one - that does all the planting, harvesting and marketing. Others are run on partnership arrangements with the investor - usually a farmer - supplying the land for planting. Some offer tax-free gains after just three to five years when the very fast growing spruce varieties are planted.
The difference with the fourth Irish forestry Fund plc, whose managing director is accountant and forester, Mr Declan Kennedy, and other afforestation schemes, is that investors in this scheme will not only own the trees, but also the land on which they are planted.
At the end of the 30-year growing period, says Mr Kennedy, the forests will be sold to the highest bidding mill, with the underlying land sold on the open market. The fund is then wound down and profits distributed to the shareholders.
Investors in this fund are being offered individual or multiple units of 3,000 preference shares at £500 each with an expected tax-free distribution in excess of £17,120 per share once the fund has been wound up, an equivalent annual return of 12.5 per cent net.
Since the fund is a publicly limited company, shareholders will not necessarily have to hold onto their shares for the full 30-year period and will be able to sell them - assuming that buyers are available of course.
The tax-free status of this project and its access to Irish and EU forestry growing grants are major attractions, but there are always downsides to any investment. In the case of tree-growing these can be fire, disease and other natural and man-made disasters.
The company believes it has covered the first two with the capital growth element of the forest insured and a reafforestation grant programme available in the event of fire. Disease is an issue that can only be tackled through good husbandry and the directors are satisfied that between Ireland's disease-free status and strict enforcement of forest plant health regulations, disease should not be an issue.
Potential investors need to satisfy themselves, however, that the forestry managers working for the company are experienced and skilled enough to nurture their investment for the long growing period.
Most financial advisers believe an investment like this should only be considered as part of a wider, well-balanced investment portfolio and only after all the downsides are considered.
The potential risks are obvious - disease, fire, bad husbandry, a collapse in markets for the timber (though European demand for timber far exceeds supply) and for people who want to sell or trade their shares before maturity, a shortage of buyers or a drop in share price.
The "success" of the three previous Irish Forestry Funds has been measured only in the huge uptake in the offer, not in the quality of the timber produced or the size of the profits achieved: not enough time has elapsed for either to be assessed.
But at £500 a share, anyone with a long-term risk profile and some interest or understanding of the value of timber growing may want to consider the offer, with the assistance of your own broker or investment adviser - although you may only have a matter of hours to do so.
Further information on the Fourth Irish Forestry Fund is available from Mr Declan Kennedy at (01) 284 1777, fax 284 5195.