Australian managers embrace the natural capital wave

QIC, New Forests and Macquarie Asset Management are taking different approaches to the nascent asset class, but there are common themes.

It’s still not completely certain that natural capital will become a major investment asset class all its own, incorporating agriculture, forestry and other natural assets such as biodiversity under one banner.

But the evidence continues to grow stronger that some asset managers view it as the future. Three of the biggest managers in Australia are joining the trend that has seen the launch of Pollination and HSBC’s JV Climate Asset Management, and Nuveen’s rebranding to Nuveen Natural Capital in the last couple of years.

QIC, better known to date for its investments in infrastructure and real estate, has launched fundraising for its first-ever commingled fund targeting food and agriculture, and has opted to make it a natural capital vehicle. The Queensland Natural Capital Fund is targeting a minimum of A$500 million ($344 million; €339 million) and is set to make investments in a range of farmland and forestry assets.

Another making a move was timberland asset manager New Forests, which launched its new business unit focused on farmland – called New Agriculture – this month. While it has no immediate plans to raise a fund, all options will be on the table. To begin with, it is focusing on adding to the Lawson Grains portfolio that it acquired alongside the Alberta Investment Management Corporation in 2021.

It does not take a huge leap of imagination to envisage a future where New Forests and New Agriculture work hand in glove, perhaps putting assets together into a single vehicle for LPs who want exposure across the sector – and this would look very much like a natural capital fund that spans the asset class, should it happen.

Also working away is Macquarie Asset Management, which, while also not focusing on raising a dedicated fund currently, has been hiring staff and establishing a platform focused on what it calls “natural assets,” led by Liz O’Leary, head of agriculture and natural assets.

The firm has been speaking publicly at various events and through a range of publications in recent months about the benefits of investing in natural assets more broadly, not just the narrower farmland sector it has traditionally focused on, and has included discussion of carbon credits and biodiversity credits as part of that. It remains to be seen where MAM will take this strategy in the medium-to-long term, but it appears clear that it sees an attraction in looking at natural assets in the round as an investment theme going forward.

The three approaches are all subtly different at the moment, but are clearly aimed at capturing LP interest in natural capital as a growing asset class.

Many LPs, though, still do not have dedicated allocations to agriculture or forestry, never mind natural capital, often lumping the former in with their real estate or infrastructure buckets.

The proof of natural capital’s success as a standalone asset class will be whether LPs start to carve out a place for it on its own, separate from other types of investments. Some of the biggest players in the space (like PSP Investments, say) currently do this with their natural resources allocation – it will be interesting to see if others follow.