Transparent, complete and reliable
Our goal is to offer our (potential) unitholders transparency and complete and reliable information, not only regarding the chances and possibilities of the investments, but also regarding the possible risks.
Besides the general existing risk factors concerning an investment in CATF, there are specific additional risks involved regarding an investment in CATF. Below we offer you a quick impression of possible risk factors that should be taken into account. For a more information or an explanation of the risks involved we invite you to contact us or download and read our Information Memorandum.
Risk assessment
When assessing an asset, the management company will follow the procedure below in order to quantify the risk:
- analysis of risks for each wood asset investment at the time
of acquisition; - quantification of all risks in terms of the induced potential
reduction in annual felling program for each wood asset; - risk adjusted cash flow for each asset;
- risk adjusted valuation at the time of acquisition.
In other words, risks are translated into potential reduction in the fellings, implying an accumulation of an “additional piece” of wood asset (buffer) to cover the risk. The adjusted felling program results in adjusted cash flow and valuation of the wood asset.
The management company with the assistance of the investment adviser will use best efforts to evaluate the risk pattern based on scientific analysis to be able to implement the most cost efficient risk mitigation measures.
Physical risks related to wood assets
Adverse events and conditions such as fire, thunder struck, hurricanes, plane crash, explosions, earthquake, volcano eruption, inundation, extreme weather, insect infestation or other causes beyond the control of the management company and CATF.
Environmental risks and natural disasters
Forests are subject to damage from fire, flood, frost, drought, insects, disease, snow and storms.
CATF will attempt to manage these risks through good forest management integrating risk management into planning and implementation as well as monitoring.
Market risks related to timber and wood products
The prices of forests, timberland and forest concessions and other investments of CATF may fluctuate over time. These fluctuations may negatively affect the CATF’s financial performance depending on whether CATF intends to buy or to sell a specific property or investment.
Interest Rate Risk
The value of the fund is impacted by the market interest rate applied upon discounting the expected future cash flows. The discounted method is further affected by the US Dollar swap curve, which is the market interest rate including the term structure. As the market interest rate fluctuates every day the discount rate is also susceptible to changes, thereby possibly influencing the value of the fund.
Geographical risks
These risks include but are not limited to potential political and legal uncertainties, economic instability and possible infrastructural deficiencies.
Risk management – Organisational risks
Wood asset risks include environmental restrictions, possible damage from biological causes and natural catastrophic events and cyclical market conditions. The management company actively manages these risks through the utilisation of proven forest management and portfolio strategies.
Due to all kind of events, such as fraud, mismanagement and/or inadequate supervision by external contracted parties, the returns may be materially and adversely affected. CATF tries to limit the influence of these events by frequent controls, including audits and strict supervision.
Economic risks and risks related to policy changes
These include amongst others the following: emerging market risk, currency risk, inflation risk, valuation risk, risks related to policy changes.
Social risks
Social risks translate into risks related to ownership of land disputes and social friction.
Risk on third parties
Despite a selection of parties and agreement relating to supervision on the management and the conduct of business, it is still possible that unforeseen circumstances endanger the continuity and the level of provision of services. In case of discontinuity of a holder of a plantation and/or another contracting party, these will be replaced.
Other risks
Some other risks and potential conflicts of interest are:
Market risk, return risk, market collapse, concentration risk, microeconomic risks, illiquidity of assets, lack of transferability of units, various legal forms of funds, leverage and debt financing, default in settlement and clearing system, no management participation by the unitholders, risk of changes in (fiscal) legislation.
The list is not exhaustive and other risks and conflicts not discussed here may arise in connection with the management and operation of CATF.