Major pension fund managers make Estonia forestry investment

The two largest pension fund managers in Estonia have confirmed major investments into the country’s forestry sector, highlighting the potential they feel the sphere offers in terms of environmental impact investing and profitability.

Swedbank Estonia Pension Funds (SEPF) and LHV Pension Funds Estonia (LHV) have invested heavily into Birdeye Timber Fund 2 (BTF2), which is a a real estate investment fund focusing on investments into Estonian forestland. Run by asset manager Birdeye Capital, which is both owned and run by forestry and investment management professionals, the timber fund is the asset manager’s first fund, with a value of around €7 million. Currently, it has returned around eight per cent since its 2013 inception.

Sander Pullerits, manager of BTF2, said: “Investing in Estonian forestland will help to hedge against inflation risk and presumably offers a more stable return than, for instance, investments in stock markets.”

Mr Pullerits went on to say that he predicted that the anticipated return on the investment would be comprised mainly of biological timber growth, along with a marked rise in the overall value of the portfolio value due to improved sustainable management of the forested land.

Of the two investors, LHV has around 15 per cent of its overall assets – which total some €900 million – invested in Estonia, while around 0.5 per cent of its fund portfolios are comprised of forest investments. The BTF investment is LHV’s first foray into timberland, it was confirmed.

Portfolio manager at LHV, Kristo Oidermaa, said: “Our commitment to invest in BTF2 was driven by our previous good co-operation. Timberland is a suitable investment vehicle for the pension fund due to the natural growth component, inflation protection and requirement for long-term good management standards.”

The other investor, Swedbank, which is also a new investor with Birdeye Capital, confirmed that it was to inject up to €10 million of its assets into the timber fund.

Kristjan Tamla, head of Swedbank Investment Funds, said that the firm viewed the move as a “long-term investment that primarily serves as a diversifier in our globally balanced portfolios.”

“The performance of timber assets is largely determined by the natural growth of forest and everyday forest management, such as cutting. We see that these components have little correlation with global equity and bond markets. In addition, the ownership of Estonian forestland is still quite segregated, with private individuals owning small plots. Part of the Birdeye strategy is to consolidate smaller land plots and achieve efficiencies of scale in managing larger forest areas,” added Mr Tamla.

Currently, no set target return has been put in place for the timber fund, however it was confirmed by industry experts that the performance fee is likely to be based around a 6 per cent hurdle rate. At present, it has been agreed that the timber fund will work on raising capital until October of 2019, at which point there will be the option to extend this deadline for another year, until October of 2020.

GWD Forestry spokesman, James Barrett, said: “The fact that these two major pension fund managers have turned to forestry investment highlights the obvious potential in Estonia’s forestry industry. It is clear that is remains something of an untapped resource, and sustainable management is the way to ensure its potential is achieved, both in terms of profitability and environmental gain for the country.”

Further reading:
http://www.baltic-course.com/eng/finances/?doc=124697
https://www.ipe.com/countries/cee/estonian-pensions-back-launch-of-forestry-fund/10016043.fullarticle

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