Forestry assets “on the right side” of investment trends

In January 11, 2017

(AU) – New Forests chief executive David Brand says forestry assets are “on the right side” of environmentally conscious investment trends after raising $660 million from six overseas pension funds to invest in a new round of timber plantation acquisitions.

Capital commitments in New Forests’ third Australia New Zealand Forest Fund are expected to grow to $800 million, Mr Brand said, with the fund offering investors “high single-digit returns”.

New Forests is eyeing up $1.8 billion worth of forestry investments to grow its portfolio, which is concentrated in NSW, Victoria, SA and New Zealand.  Mr Brand said there was $22 billion worth of commercial timber plantations in Australia and New Zealand.

“Forestry is an increasingly important asset class as investors seek to decarbonise investment portfolios and play a part in the emerging bio-economy,” said Mr Brand, who established New Forests in 2005.

As a “net carbon-positive industry”, forestry enables investors to reduce their carbon footprint. “Institutions are selling out of fossil fuels and adding forestry and renewables to be on the right side of the trend,” Mr Brand told the Australian Financial Review.

In November, mining giant BHP Billiton stumping up $15.7 million to back a World Bank-issued “forests bond” that also attracted investment from QBE, JP Morgan and US pension giants CalSTRS and TIAA-CREF. The $US152 million ($204 million) bond is linked to a project to reduce deforestation in Kenya.

New Forests, which has $3.6 billion of forestry assets and funds under management, including more than 780,000 hectares of timber plantations, was one of the few major players to survive the wreckage of the retail-investor-backed managed investment schemes which collapsed following the global financial crisis.

Earlier this year, Japanese trading and investment giant Mitsui acquired a 22.5 per cent stake in New Forests. Explaining its decision, the company said the sector was positioned for further growth in the coming years “as institutional investors seek to increase investment in real assets like timber, agriculture, real estate, and infrastructure”.

Mr Brand said the forestry sector was now entirely recapitalised, with institutional investors owning 60 per cent of the assets. The sector is also expanding into new products beyond paper and timber, including baby diapers and a high-energy fuel product, he said.

Apart from its green credentials, he said forestry investments appealed to institutions because of their low correlation with stocks and fixed-income products, their stable return profile, and because they have no real maturity point. “They’re not like tomatoes,” he said.

He added that market conditions in Australia were very good at present, with a lower dollar, record housing starts and China’s huge growth driving demand for timber and paper.