Wealthy investors are increasingly turning to farms and timber land as inflation hedges, a new report from the Wall Street Journal notes.
The practices of investing in farm and timber land is so popular, banks are bulking up their asset management practices to accommodate the demand. The Journal reports Bank of America Corp (NYSE:BAC)’s US Trust’s Specialty Asset Management group is hiring in its farm and timberland investment groups to keep up with client demand. The group has $170 million of investor money sitting on the sidelines waiting for farmland and ranchland investments and another $215 million waiting for timberland. This is on top of the $1 billion-plus in farmland it already manages and $300 million in timberland. The investments, however, are only for the well-healed. Clients have at least $50 million in investible assets and invest a minimum of $5 million, says Dennis Moon, the head of the specialty asset group, quoted in the Journal report.
Investments in farmland returned 20.9% in 2013
In January ValueWalk had reported farmland investments returned 20.9% in 2013, according to the National Council on Real Estate Investment Fiduciaries (NCREIF). In their quarterly report on Farmland returns, the index was up most significantly in the fourth quarter of 2013 – a gain of 9.26%, opposed to a gain of 2.94% in the third quarter. The returns mark the most significant performance of institutional farmland investments since 2006 when the fund delivered 21.2% returns performance. In 2005 farmland investments delivered 33.9% performance. Making up the performance is a split between land appreciation, which accounted for 11.5% of annual performance, and income, which accounted for 8.7% of performance.
Timberland returned 9.8% in 2013
The Journal reported that in 2013 timberland returned 9.8%, according to an index compiled by the National Council of Real Estate Investment Fiduciaries in Chicago. Over 20 years, farmland has returned an average 12.5% a year and timberland has returned 8.3%, the group says.
The report said farmland and timberland is popular because it is uncorrelated to stocks, is an inflation hedge and it can produce a steady income in the form of rents paid by farmers who are growing crops or sales of trees to paper and furniture companies.
“I wanted to get my assets into hard assets, and gold doesn’t pay you anything. Farmland does,” Perry. Vieth, a fixed-income and currency investor at PanAgora Asset Management, a Boston hedge fund firm, was quoted as saying in the article.