Forestry highlighted as ‘environmentally conscious’ investment trend

A Sydney-based sustainable forestry manager has called forestry an ‘environmentally conscious investment trend,’ while confirming that the fund’s growth highlighted the unlimited potential the sector offers.

New Forests chief executive, David Brand, said that capital commitments in the fund’s third Australia New Zealand Forest Fund are tipped to increase to around $800 million following the receipt of new capital from six overseas pension funds.

The pension funds have injected $660 million into a new series of timber plantation acquisitions, keen to make the most of the fund’s pledge to offer its investors ‘high single-digit returns.’

Currently, the fund – which is focused around New Zealand, New South Wales and South Australia, is planning to obtain $1.8 billion worth of forestry investments in a bid to boost its forestry portfolio even further. Indeed, Mr Brand confirmed that there were $22 billion worth of commercial timber plantations located across Australia and New Zealand, highlighting the scale of this sector’s potential.

Mr Brand told IPE Real Estate: “Forestry is an increasingly important asset class as investors seek to decarbonise investment portfolios and play a part in the emerging bio-economy.

Institutions are selling out of fossil fuels and adding forestry and renewables to be on the right side of the trend,” Mr Brand added, saying that forestry was a “net carbon-positive industry” which allowed investors to lower their carbon footprint while also feeling good about their environmentally sound investment.

Major investors are getting into the forestry sphere – at the end of last year, mining firm BHP Billiton injected $15.7 million worth of capital in order to support a World Bank-issued forests bond aimed at lowering the level of deforestation in Kenya. This bond also enticed investment capital to flow in from JP Morgan, QBE, JP Morgan and US pensions firms CalSTRS and TIAA-CREF.

This year, the Japan-based trading and investment firm Mitsui snapped up a 22.5 per cent ownership stake in New Forests forestry fund – which manages more than 780,000 hectares of timber plantations – saying that the sector was poised for such growth in the future that it was too tempting a proposition to miss out on. The growth would be due in part to “institutional investors seek to increase investment in real assets like timber, agriculture, real estate, and infrastructure,” Mitsui said.

According to New Forests’ Mr Brand, the majority – 60 per cent – of the global forestry sector is now owned by  institutional investors, drawn in by possible strong returns and the ‘feel-good’ factor of the investment type. The sphere is also continually expanding into new realms, including nappies and a new fuel product, Mr Brand went on to say, meaning that the potential returns and ability for investors to diversify within the sector could be even higher.

Major forestry investments were also tempting for investors due to their low correlation with stocks and fixed-income products, as well as their reliable, strong returns and lack of maturity point, Mr Brand went on to say.

GWD Forestry spokesman, James Barrett, said: “Demand from China for timber and paper spells a strong future for the forestry sector and major investments from organisations such as JP Morgan and others highlights that forestry is now a true force to be reckoned with on the investment stage.”

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