Gresham House launches £300m forestry and carbon credits fund

The British fund manager anticipates strong interest in the vehicle, which will combine returns from commercial forestry, carbon credits and asset appreciation.

Gresham House has launched its £300 million ($424 million; €348 million) UK-focused Forest Growth and Sustainability Fund, which will in part provide distributions to investors in the form of carbon credits.

LPs can choose to either sell the 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, insetting refers specifically to reductions that are directly related to a company’s operations either by geography, production or commodity.

The fund will seek to deliver a net IRR of 6 percent across its 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.” The vehicle has a £100 million 2021 capital-raising target.

The fund will acquire existing forestry to generate income and will plant 10,000 ha of new woodland to deliver capital growth and “enable the sequestration of carbon and generation of carbon credits,” the firm said in a statement. The 10,000 ha of new woodland will account for 70 percent of the strategy’s target land area. The strategy will target commitments from mixture of Institutional pension funds and private clients and private family offices.

Agri Investor revealed in March that Gresham House will launch up to four new timber funds in 2021, one of which would be dedicated to the UK.

The remaining three vehicles will make up the GP’s international strategy, managing director Olly Hughes told Agri Investor, with an Australasia Forest Fund pursuing commercial forestry opportunities in the region. The firm will also launch the second iteration of its Forest Carbon Fund, which will target jurisdictions with compliance emissions trading systems, such as New Zealand and California.

The fourth fund the firm could launch this year will be a Europe Forestry Fund, which will focus on opportunities in Northern Europe. Forestry investment director David Gardner, who joined Gresham House in June 2020 from US timberland investment firm Global Forest Partners, will lead the firm’s international strategy.

Director of forestry and private markets Crosbie Dawson said in a statement that the UK-centric Forest Growth and Sustainability Fund will “benefit from capital growth and income generation whilst meaningfully combatting climate change,” due to the strategy’s combination of commercial forestry and carbon sequestration.

“Additionally, sustainable forestry offers protection against mounting inflationary pressures alongside strong portfolio diversification due to its uncorrelated returns,” added Dawson. “By increasing the UK’s forestry stock, we are also contributing to the UK’s natural capital, enhancing the country’s climate, biodiversity and flood mitigation.”

Managing director for institutional business Heather Fleming said: “We expect to see strong interest in this sustainable solution that combines existing commercial forestry and woodland creation, as demand for ESG investments and carbon credits continues to contribute to rising forestry valuations. The flexibility of being able to retain the carbon credits for insetting or selling them for income provides investors optionality dependent on their carbon footprint and return requirements.”