The Diversification Potential of Tropical Timber Plantation Investment Funds

Abstract

This article investigates whether a particular type of international investment is helpful in diversifying an investor's portfolio. We analyze tropical timber plantation investment funds that sell participants in forest plantations. Apart from an attractive expected return on investment, these funds suggest that investing in this investment vehicle might save tropical forests. The investment has almost no systemic risk and has an expected return that is far above the risk–free rate of interest. Nevertheless, because of credit risk, country risk, and limited liquidity, we find that there is no free lunch to be found in the rainforests.