Gresham House closes UK forest fund on £300m

Gresham House closed its UK-focused Forest Growth and Sustainability Fund on its £300 million ($369 million; €346 million) target to support a strategy focused on sustainable timber harvesting and carbon credit sales.

The London-headquartered asset manager received commitments from family offices, private investors and institutional investors including the Scottish National Investment Bank, the Pension Protection Fund, Worcestershire Pension Fund, East Riding Pension Fund and the National Trust.

The Forest Growth and Sustainability Fund was launched in June 2021, held a £127 million first close in August 2021 and had a £200 million second close four months later in December.

Gresham House will seek a net IRR of 6 percent across the vehicle’s 20-year term with distributions commencing in 2026, according to a marketing document seen by Agri Investor. The 6 percent IRR figure relates only to “pure forestry returns,” a Gresham House spokesperson clarified, while “any carbon credit will be in excess of this return target, creating upside potential.”

“In the future, we are looking to make distributions from the fund, instead of in cash; the distributions will be made by way of carbon units as they are generated by the forests,” managing director Olly Hughes told Agri Investor.

“What it enables investors to look at is a core revenue driver coming from the forest and the trees and the sale of that timber in future, but also to have this additional upside and opportunity to source this carbon, and very high-quality carbon because they know where it’s come from and its provenance.”

LPs can choose to either sell their carbon credits to generate revenue or they can hold onto them “for insetting purposes,” the firm said. Whereas carbon offsetting involves investing in or acquiring credits derived from carbon reduction activity that may occur outside a company’s direct or indirect operations, in-setting refers specifically to reductions that are directly related to a company’s operations either by geography, production or commodity.

“Some people are saying they would like to be able to utilize that carbon for their own in-setting or off-setting purposes. Others are saying they would like to source carbon in the future for their own purposes of cash return. Others are saying they may have a hybrid of the two,” said Hughes.

Gresham House manages around 160,000ha of forestry worth more than £3.5 billion in Australia, the Baltics, Ireland, New Zealand and the UK. The firm said capital raised in the final close will be deployed rapidly, with a focus on new productive woodland planting schemes and the acquisition of existing woodland for sustainable commercial timber, building on the fund’s existing portfolio of approximately 10,000ha spread across around 40 properties.

“We need to be in areas that, as far as we can tell from future climate change modelling, will become wetter and warmer and not hotter and drier. You’re seeing places like the UK, Ireland, Northern Europe, North America and Australia/New Zealand – which is really where we focus our attentions – all falling into that gap,” said Hughes. “Specifically in the UK, that really means Scotland, Wales and parts of Northern England.”

Hughes said growing interest in forestry’s potential for carbon sequestration comes at a time when LPs are still in the early stages of their sustainability journeys and very wary of committing too far in any one direction. He added there is currently a strong degree of tension between ambitious goals for progress toward climate-related goals and broader concerns around biodiversity.

“There is a potential for binary thinking; you can have one or the other or we should be one or we should be the other. We’ve got be maintaining a balanced view because if we become 100 percent biodiversity-focused and just plant broadleafs across all our planting aspirations, we will have no timber,” he said.

“As a result, we will then lean more heavily into the hydrocarbons in supplying all of the fiber needs and before know it we’re back to where we started.”

Binyamin Ali contributed to reporting