The Irish Mail on Sunday
Forestrylookedasurebet for investors 10 years ago. Sowhathasgonewrong?
Atypical headline a few years ago when forestry was all the rage was: ‘Money does grow on trees.’ Tens of thousands of people poured cash into 10-year savings plans that were not only good for the environment but also offered tax-free returns above 9%.
Well, over a decade later, it hasn’t quite gone according to plan. Some schemes have yet to give any return to investors, let alone the handsome profit promised.
One MoS reader invested €2,250 in the Sixth Forestry Investment Plan in 2003. This bought forestry assets that were meant to be sold 10 years later, releasing a nice profit for investors.
In 2013, the investor contacted the Irish Forestry Funds (IFF)*. He said: ‘They informed me that they were not in a position to repay investors as the assets had not been sold. I also note that similar products (with the same company) bought in 2002 have also not “matured”. I am very frustrated with this as I am struggling financially.’
IFF maintains that it is holding out on selling assets until the market for semimature forestry improves.
It said offers were received that ‘would have been profitable but were not quite acceptable, so they were rebuffed,’ said marketing director Paul Brosnan.
‘We are acting in the best interests of shareholders at some cost to ourselves,’ he said, claiming: ‘Most investors are behind us.’
Part of the problem was a carpet-bagging mentality among international investors, who think that anything for sale in Ireland is a ‘distressed asset’. ‘But forestry is not impacted [by the financial crisis]. Timber hit record prices last December,’ Mr Brosnan said.
He is ‘hopeful’ of getting all the outstanding portfolio sold within six months but he would not guarantee this.
‘We are anticipating a profit [when the assets are sold]. It’s just a question of how much,’ Mr Brosnan said.
He added that the last IFF plan to mature – the third – produced a return of 46% in total, or 3.9% per annum, a couple of years ago.
So what can investors who want their money back do in the meantime? The IFF said it arranges a market for clients to sell their shares, a process that can take up to six weeks. See www.irishforestry.ie for details.
But our reader is not happy with this. ‘I am not prepared to sell off and take a hit now given the fact I have waited this long,’ he said.
The company may have valid reasons for holding off on selling the assets until it gets a better price. And if it makes any sort of profit, that’s a reasonable return given that it’s tax-free and we’ve been through an extraordinary financial crisis in the past decade.
In fact, forestry investments have a fantastic record in adding value during some of the worst investment crashes in history. Ireland also badly needs more trees for environmental and economic reasons.
We are one of the least afforested countries in Europe despite having the best climate in the northern hemisphere for tree growing.
However, our reader is right to be annoyed as he feels misled as to both the investment term and the likely return. The prospectus for the Sixth Forestry Investment Plan repeatedly mentions that it is a 10-year tax-free investment.
Also, still on the company’s website is a projected annual rate of return over 9% despite the fact that there is difficulty selling the assets in a timely manner, let alone for such a handsome profit.
Imagine the uproar if a bank advertised a product with a 10-year return above 9% and then, 12 years later, told investors that they would be doing well to get half that at some undefined point in the future.
IFF is not regulated by the Central Bank. But maybe such investments ought to be taken under the bank’s wing.
The company wouldn’t have to deal with annoyed shareholders now if the promotion had been a bit more circumspect – as the Central Bank demands of regulated entities.
Maybe the old adage was right after all: money doesn’t grow on trees. * The Irish Forestry Funds is a collective term for 30 funds, each registered as a separate public limited company launched since 1997.