Foresight looks to break new ground with listed UK forestry vehicle

The fund manager wants to cater to institutional LPs looking for British forestry investments, while offering entry and exit optionality for a wider spread of investors.

When Agri Investor last spoke to British fund manager Foresight in July, director and head of new product development Richard Kelly told us the firm did not invest institutional capital in forestry, but that it was “seriously considering” such a vehicle.

“We believe that the characteristics of UK forestry and afforestation actually should be very appealing to institutional investors and developing a dedicated strategy for institutional investors is one of the options that we’re considering and working on,” Kelly said.

That strategy took shape this week as the firm announced it had established a new business, Foresight Sustainable Forestry Company, which will list on the London Stock Exchange and operate as an investment trust. The company will offer a target issue of 200 million ordinary shares, with an initial issue price of £1 ($1.37; €1.16) per share. The issue is expected to close in November.

Foresight’s existing £130 million portfolio of timberland assets is held in its inheritance tax solution, which is only accessible to retail investors. Providing the IPO is able to generate a minimum of £130 million and can therefore go ahead, its seed assets will be provided by the inheritance tax solution, which will in turn make a cornerstone investment equivalent to a 29.99 percent share in the company.

Robert Guest, a director in Foresight’s infrastructure team who will manage the new entity alongside Kelly, told Agri Investor the firm chose to pursue a public vehicle due to the flexibility it offers investors.

“We are expecting institutional investors to be attracted to this,” said Guest. “[Investors] could use this for their ESG and sustainability allocation and it is a long-term investment. Having that optionality to trade the shares or to dial up your allocation if there are further placings and fundraisings should be quite attractive.

“Within ESG sustainability buckets, a lot of people are very long on wind, solar and gas-price exposed leveraged assets. We think having this liquid [option] should be quite a tool that they can use if they want to get into UK forestry, get a different correlation to a different asset class that is very strong on ESG and sustainability.”

Without wishing to labor the point made in last week’s letter – taken alongside the news that Swedish pension AP3 has completed a $500 million Texas timberland deal in the seven days since then – it’s hard not to make the same point again.

More and more LPs are clearly seeking exposure to timberland, and the GPs that can provide the right entry points – Hancock Natural Resources Group supported AP3 with its Texas acquisition and will manage the asset – are unlikely to be short of backers for their strategies.

Foresight’s vehicle does carry an element of venturing into the unknown, as it would become the first listed UK forestry investment trust – though by no means the first in the world.

The vehicle’s IPO success, or lack thereof, will provide another indicator of the level of unmet investor demand in an asset class that is already having a very strong second half of the year.