Timber MIS report ‘flawed’

A new report by Melbourne University attacking timber managed investment schemes has been described as “seriously flawed” by the industry.

The report, by University School of Agriculture researchers Patrick Mackarness and Professor Bill Malcolm, said there was a lack of accountability by investment managers who were deceiving their investors.

The authors said the lack of reporting on physical growth rates of the plantations in the schemes by independent auditors meant the Managed Investment Act (MIA) wasn’t doing its job of protecting investors.

Treefarm Investment Managers Australia executive director Alan Cummine said the references to the MIA were irrelevant as the act has been superseded by Financial Services Reform (FSR) and this showed the report was out-of-date and misleading.

“MIS plantations have become one of the most highly scrutinised and regulated of all investment sectors,” he said.

“They are regulated by ASIC [Australian Securities and Investments Commission] under FSR and Australian Financial Services Licence provisions, which post-date the MIA.

“They are also regulated by the ATO [Australian Taxation Office] under the tax law and especially the Product Rulings program and several publicly-listed MIS plantation managers have to comply with the strict disclosure rules of the ASX.”

Cummine said most of the major plantation companies are also independently certified under the Australian Forest Growers Disclosure Code for Afforestation Managed Investment Schemes.

This has a requirement for reports by independent foresters to be included in the product disclosure statements and also to be sent regularly to investors in the projects about the performance of their plantations.

“It is simply not true that growers are not kept informed about their investments,” Cummine said.

“Although ASIC PS 170 essentially prevents scheme managers from publishing forecast returns, all the independent research houses now publish forecast returns for the projects they assess, and their reports are available to financial planners to pass on to investors.

“The research analysts play an increasingly important role in the assessment and monitoring of MIS timber projects.”

Australian Agribusiness Group executive manager Tim Lee said recording tree growth each year was irrelevant because most plants were slow growing above ground in the first five years as root structures were formed.

“You cannot get a reasonable idea of growth rates until the tree is at least five years old,” he says.

“However, we do provide data on how a plantation is performing every year and that is available to financial planners and the managers to pass onto their clients.”

This data is produced in an annual report on corporate governance in conjunction with Ernst & Young.

Lee said the report, which is publicly available, looks at the quality of the investment, the management and the company in charge of the project.

He said if mandatory reporting of growth rates was introduced it would be very expensive and that cost would be passed onto the investor.

“To get an understanding on the growth rates of each plantation, which varies depending on the region, would require intensive sampling that will take a lot of time and money,” he said.

“It is not needed for every year and the real time to see what the yield is of a plantation is when the tree is cut down at the end of the scheme.”

Lee said modern forestry techniques and better site selection has meant the modern plantation managers are now achieving their projected yields.

“Modern plantation managers and schemes cannot be compared to projects from the early 90s, which did not always meet the projections,” he said.

Cummine said later plantations are performing far better than the very first schemes because of advances in site selection, preparation, genetics, fertilizer and weed control regimes.