Way back in the mists of time I remember writing about the next big alternative investment class of choice. Forestry. Everyone seemed to be in on it. Obviously, the landed gentry and most royal families had been in on the act for decades. Then the big endowment funds came along with various big US endowments betting big on places like New Zealand. Finally, the asset managers came, led by innovative outfits such as GMO who’ve built a strong franchise in the area.
At the end of this process, it was inevitable that someone would launch an investment trust — or two. In my experience as soon as anyone finds a half viable alternative asset class, you get a stampede of impersonators who say they have exclusive access to the ‘new stuff’. In the UK at one point we had two relatively successful — in fundraising terms at least! — forestry funds. And then it all went wrong. The returns didn’t materialise and surprise, surprise the underlying assets were found to be…illiquid. What a surprise!
Anyway, as is always the case, the alternative soon got turned into the pariah and investors ran for cover. But that still left the investment trusts and particularly Phaunos Timber working out what to do next. The original fund managers were removed and a new bunch of advisors brought in called Stafford Timberland — who seem perfectly professional and up to the job. They’ve rationalised the portfolio, sold the duds and kept capital going into the best assets. But as is the way with many funds, Phaunos is fast approaching the point where it’s shareholders must decide whether to wind it all up …or soldier on. So, it comes as a bit of a surprise that one of the fund’s key shareholders LIM Advisors has written a letter to the rest of the shareholders that it will vote to close the fund at the AGM on 19 June. After backing Stafford, it now seems that LIM has got cold feet. One of the core reasons is that the manager has suggested that the core portfolio should yield between 3 to 5% and NAV growth could also be 3 to 5%. The cynic suggests the lower of both figures is more appropriate at which point one faces the awful truth that a likely long-term return is around 6% per annum before fees. According to a Numis report on the affair, “LIM believes that these returns ‘are lower than many current Phaunos shareholders would like to earn’.