BTG’s Gerrity Lansing: LP interest in timberland ‘doesn’t seem like a fad’

The last time Agri Investor heard from BTG Pactual Timberland Investment Group head Gerrity Lansing, it was 2017 and the firm had just launched its open-end US timberland vehicle.

At the time, top of the agenda was how US investors were increasingly focused on the mismatch between traditional closed-end fund structures and forestry assets designed to perform over decades.

The years since have seen growth in that strategy as forestry’s potential for climate mitigation, a surge in inflation and the rippling supply chain effects of the pandemic have thrust the traditionally staid world of timberland management closer to the spotlight. For BTG, the years since 2017 have seen the firm expand its presence in US timber markets significantly, while establishing new partnerships with institutional investors and well-established non-profits that reflect some of the market’s dominant trends.

Soon after the firm was awarded the 2022 Americas Fund Manager of the Year Award, Lansing sat down with Agri Investor to discuss the factors that have conspired to raise the timberland market’s profile, and BTG’s rapidly growing place within it. He highlighted unprecedented media focus on simultaneous wildfires in California and Brazil and lumber price strength brought on by pandemic-inspired home renovations as the most significant factors bringing more investors into the timber market and attention to forestry issues.

“To me, it doesn’t seem like a fad,” said Lansing, who in 2006 co-founded a Brazilian timber manager later acquired by BTG, before joining the bank and assuming his current position in 2012, according to his LinkedIn profile. “It feels like people are staffing up with investment professionals that have a legitimate interest in the asset class, which is exciting.”

‘Timber prices actually didn’t change that much’

BTG’s Open-Ended Core US Timberland Fund (OEF) had raised more than $815 million from at least 40 LPs as of a January filing and has a total AUM of nearly $1.2 billion, according to BTG.

The vehicle’s strategy targets unlevered nominal net IRR of 6 percent through creation of a portfolio consisting of 45 percent US South properties, 25 percent Pacific Northwest timberland and 30 percent of investments focused on mixed quality hardwood sourced largely from Appalachia and eastern hardwood regions, according to a 2019 Townsend presentation to the TIG separate account client the Arkansas Teacher Retirement System. The presentation says the OEF is structured with quarterly contributions, a two-year initial lock-up period and quarterly liquidity thereafter.

“Timberland investment in US hardwoods has traditionally been focused on high value hardwood (such as cherry, ash and maple) exported to the European market,” Townsend wrote. “However, global demand has shifted to more commodity hardwood (oak and yellow poplar) as demand has surged in Asian markets. Hardwood lumber exports to Asia are increasingly sourced from the sustainable hardwood producers of North America and decreasingly sourced from tropical hardwood lumber suppliers where sustainability is in question.”

“In 2017, we were at the tail-end of a decade of very poor performance for timberland investing, especially in the US”

Gerrity Lansing, BTG TIG

TIG has three main strategies and vehicles that invest in the same type of assets alongside those flagship funds, explained Lansing. LP interest in separate accounts and other partnerships has grown alongside commitments to BTG’s OEF as recent years’ uptick in inflation concerns and increased focus on sustainability has boosted investor interest in timber, he said.

In late 2022, for example, BTG partnered with Canadian pension British Columbia Investment Management (BCI) to create Caddo Sustainable Timberlands, a platform company seeded with 772,000 acres located in East Texas and West Louisiana and plans for continued expansion in the US southeast.

Though sustainability is an increasingly important consideration bringing capital into timber markets, Lansing said the return of actual inflation and desire for returns has played a bigger role in motivating investors to find new avenues into the market. He highlighted that NCREIF timberland returns were up more than 10 percent last year as stocks were down nearly 20 percent, and the index was showing historic levels of correlation to inflation.

“In 2017, we were at the tail end of a decade of very poor performance for timberland investing, especially in the US,” he said. “There’s nothing that predicts future capital flows more than past performance.”

Lansing added that while there has been a flurry of investment activity and new projects, market conditions are rewarding established firms with genuine expertise. One such opportunity came in mid-2021, when BTG paid $35.9 million to assume control of two funds that added 110,00 acres of Pacific Northwest timberland from Rayonier subsidiary Olympic Resource Management to its portfolio.

“A lot of investors conflate the price action of timber with lumber and they’re different,” said Lansing. “Lumber is the end product – and that’s the one that went up from $400 per cubic meter up to $1,600 – timber prices actually didn’t change that much.”

Latin America’s climate opportunity

The unit Lansing leads was founded in 2013 as a subsidiary of Brazilian bank Banco BTG Pactual, which has invested in timber since 1981. It manages a portfolio of $5.6 billion in assets and commitments and a portfolio of about 3 million timberland acres divided between 1.6 million in the US and 1.4 million in Latin America.

Lansing said that in addition to helping bring more attention to general forestry issues, media coverage of the negative environmental consequences of the forest fires that followed the election of former Brazilian president Jair Bolsonaro, also helped investors finally “connect the dots” on the key role timberland can play in sequestering emissions.

“The faster a tree grows, the faster it’s going to sequester CO2, so naturally, from a pure climate perspective, the bigger opportunity is in Latin America”

Gerrity Lansing, BTG TIG

In September 2021, BTG established a partnership with the non-profit The Nature Conservancy focused on sustainable management of 530,000 acres owned by TIG. The pair intend to maintain and enhance environmental and financial gains from the assets, which chief sustainability officer Mark Wishnie told Agri Investor could include revenue from carbon credits, recreation opportunities, wetland mitigation and other sources.

BTG is also pursuing conservation opportunities through The Reforestation Fund, which has already begun acquiring properties for a 15-year plus strategy focused on raising $1 billion over five years. Plans call for acquisition of about 300,000 hectares of former grazing land in Brazil, Uruguay and Chile and conversion of the property into 50 percent plantation forest and 50 percent restored natural forest.

In late April, the White House announced that the US Development Finance Corporation has plans for a $50 million debt investment to help the facilitate BTG’s reforestation strategy as part of broader efforts to encourage scaling forest protection and restoration to help address climate change.

Lansing said the vehicle, launched in collaboration with non-profit Conservation International, looks to build upon the unique biological advantages of Brazil and other countries in the region.

“The faster a tree grows, the faster it’s going to sequester CO2, so naturally, from a pure climate perspective, the bigger opportunity is in Latin America,” he said.

Latin America’s largest timber market, Brazil, is also the focus of TIG’s other vehicle, the BTG Pactual Brazil Timberland Fund, which is on its second vintage. Lansing said that although sentiment on the country has been volatile, the recent election of president Luiz Inácio Lula da Silva, and indications he intends to adopt a less nationalist posture than his predecessor, has led to an increased willingness among institutional investors to consider commitments to Brazil over the past six months.

In 2021, TIG teamed with BCI and Dutch pension APG to launch Vista Hermosa, a company focused on sustainable management of 80,500 acres of timberland in central and southern Chile. Earlier this year, BCI and BTG announced plans for their joint venture, Lumin, to invest $136 million into the construction of a sustainable plywood mill in Uruguay.

Though the acquisitions of recent years have left BTG’s portfolio currently weighted slightly to the US market, Lansing said he expects the balance to return towards a slight South American majority at some point over the next decade. In addition to the markets’ biological advantages, he said, rare US political consensus around confronting China suggests LPs are likely to continue their recent openness to Latin America’s emerging markets.

“The complexities in the relationship between the US and China have made it such that people are realizing they have to point towards Latin America as an investment location more and more,” Lansing said.  “If they are trying to get exposure to emerging markets, they can’t just invest in China anymore. There are other places you have to invest.”