Foresight set to close UK forestry deals worth £30m

The firm is 'seriously considering' a distinct forestry vehicle that would target institutional investors, with its latest series of deals set to take it beyond £100m deployed into the asset class.

Infrastructure and private equity investment manager Foresight is in the process of closing £30 million ($41 million; €35 million)-worth of UK forestry deals.

The investments are being made by the British firm’s inheritance tax solution vehicle, which has a portfolio worth £670 million and is invested in other sectors including renewable energy, reserve power plants and secured lending.

Foresight’s inheritance tax solution is aimed at retail clients and is intended to mitigate the liability of IHT by investing in assets that qualify for business relief, rendering shares exempt from IHT after being held for two years. The vehicle has a return target of 3 percent to 4.5 percent per annum, net of charges.

“We’ve invested over £70 million into forestry transactions that have completed and that’s over 20 different assets,” director and head of new product development Richard Kelly told Agri Investor.

“We have a further £30 million of transactions that we’re in exclusivity on and that covers a further 30 forests and afforestation schemes – that’s where there’s been an auction, we’ve won the auction and we’re now going through the legal due diligence process, or where we’ve agreed a price bilaterally in an off-market arrangement.”

Foresight manages a series of funds investing in strategies ranging from growth to renewable energy, into which institutional LPs invest. The firm does not currently invest institutional capital into forestry, but is “seriously considering” such a vehicle, said Kelly.

“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,” he explained.

The firm’s forestry investment strategy exclusively targets British assets due to the price advantage they hold over imported timber, which accounts for roughly 80 percent to 90 percent of all the timber that is used in the UK.

Kelly added that another advantage of investing in the UK is the country’s climate, which allows commercial tree species to become harvest-ready within a 35-to-40-year rotation, whereas the same species would take 80-100 years to reach the same maturity in Sweden or Finland, for example.

Foresight is also tiling more towards the creation of new woodlands instead of acquiring pre-existing forestry assets.

“There are several drivers for that – we need and must plant a very substantial area as part of our plan to get to net zero by 2050,” Kelly said. “There is also international recognition that tree planting is a key part of the fight against climate change and is a solution against that.

“The UK government is now targeting that we plant 30,000 hectares of new woodlands per annum. I think potentially that target could be increased but we do see a step change in the amount of afforestation dealflow that’s out there, and it is also a particularly attractive investment opportunity.”

Foresight has circa £7.2 billion of assets under management, according to its website.