RMK Timberland, which made its first international timber investment late last year in Uruguay, plans to start investing in Brazil this year and is considering Chile and Argentina. Next year Charlie Daniel, president and cio, plans to turn his attention to South Africa and the Baltic states. The firm is hunting abroad, seeing as returns from domestic timber have fallen off during the last five or six years due to a weaker market for wood. U.S. investments are yielding an average 6-8% real return annually, whereas investments in Uruguay and Brazil should deliver a 9-12% real rate of return. Trees grow fast in all these countries so cash flow can be generated quickly. The exception is the Baltic States, where growth is lower but there is a good supply/demand dynamic and the markets are quite inefficient. The firm has raised a $140 million closed fund to invest in Latin America. Of this, $80 million has been invested in Uruguay and the remainder will be put to work in Brazil. Daniel plans to launch a second fund late this year or early next year, which might also tap into Chile and Argentina. The firm is targeting European and U.S. institutional investors and clients include the Dallas Police & Fire Pension Fund.
RMK Timberland started with Uruguay because it is politically stable, with a high literacy rate and low crime rate. Most of the trees are planted on pastureland, so growing trees is reforestation rather than interfering with a natural forest.
Daniel wants to close on an investment in Brazil in the next three to six months. There are significant opportunities because the land mass is so huge. Chile’s forestry industry is mature and efficient, so it’s harder to find good opportunities. Daniel is concerned about political risk in Argentina.
RMK Timberland will probably seek a joint venture in South Africa, which has a well-established forestry industry and market. Daniel doesn’t expect to make a move until next summer.