Criterion Africa Partners, a timber-focused private equity firm headquartered in Bethesda, Maryland, has reached a first close on $81 million for its Africa Sustainable Forestry Fund II.
The fund, the second offering from the Global Environmental Fund spin-out, is a growth equity fund with a focus on strong ESG principles and a target of $150 million.
Thus far, the vehicle has secured investments ranging from $5 million to $30 million from investors including Dutch development bank FMO; BIO, a Belgian DFI, and a climate-change-focused foundation connected to Jeremy Grantham.
Plans call for investments from Africa Sustainable Forestry Fund II to be concentrated on acquiring controlling and significant minority stakes in assets across Sub-Saharan Africa, with a particular focus on southern and eastern Africa.
“The fund invests across the forestry value chain including brownfield forest plantations, downstream processing of high-value building material and biomass energy used to replace fossil fuels by dairies, breweries, textiles manufacturers and other users of industrial steam,” wrote Criterion.
Criterion managing director George McPherson told Agri Investor that, while some of the DFIs that have committed to Fund II were also investors in its predecessor, which closed on $160 million in 2010, the firm has focused on broadening its reach to more traditional investors for the second effort.
However, McPherson said it is investors that already have experience in Africa that are more willing to commit to the strategies focused on the region and appetite for exposure to Africa is lower today than it was four or five years ago.
About three-quarters of the capital in Fund I went to acquiring brownfield assets in countries including South Africa, Swaziland, Uganda and Gabon, according to McPherson. Though that fund is fully invested, he added, because such brownfield assets take a long time to grow, Criterion has yet to have an exit from that fund, though there have been expressions of interest.
“The lack of exits in Sub-Saharan Africa has caused people to tap the breaks,” McPherson added. “As long as they are getting the types of returns they are getting, there doesn’t seem to be the need to look too far afield.”
One factor that has been supportive of fundraising, according to McPherson, is investors’ growing focus on impact investing and other investment initiatives with a strong focus on ESG and climate change. While the firm does not use the impact investing label directly, McPherson said, the Criterion team’s long experience in projects shown to have had a developmental impact has helped entice LPs.
“Investing in projects that contribute to the fight against climate change is a key part of BIO’s mission,” BIO chief executive Luuk Zonneveld said. “We are hence proud to support an experienced team in the development of sustainable forestry across Sub-Saharan Africa.”
In addition, McPherson said, the entry of large established investors into the impact investing market has also increased the pool of potential co-investors for Criterion’s larger, more capital-intensive projects that could involve incorporating an agricultural component.