Interested in timberland? Consider LatAm

The speed at which trees grow and carbon credits can be generated on the continent is a big draw, while some LPs seek alternative emerging markets to China.

As LP interest in timberland started to climb over the last three to four years, a lot of the clamour was helped along by the wider growth in ESG considerations.

Gradually, net-zero commitments, the need to generate high-quality carbon credits, and now, a desire to hedge against inflation, have all combined to make the asset class a hot topic.

Amid this global growth in interest, two jurisdictions are worth highlighting – Asia and Latin America.

Asia is becoming a key region because major LPs have made no secret about their desire to better understand and deploy capital into the asset class.

The last two years have brought a $150 million commitment from the National Pension Service of Korea into Stafford Capital Partners Fund IX, which closed on $695 million; Sumitomo Mitsui Trust Bank’s first investments into forestry vehicles occurred at the end of 2021 and start of 2022; while Mitsui and Nomura’s acquisition of Australian timberland specialist New Forests was the region’s standout forestry deal in 2022.

“Timberland investment is the only investment target where you can make a large-scale investment and then get very high-level carbon credit,” a source that works with institutional Asian LPs considering forestry allocations told Agri Investor. “It’s not that they have no other choice but if you think seriously about how to get to net zero in the current situation, then timberland investment is one of the very strong candidates available.”

The source added that while the region’s largest banks and insurers have shown greater keenness on the asset class’s ESG and carbon credit potential, pension funds are being pulled in by a desire to secure a hedge against inflation.

LatAm fits into this developing picture because, according to Agri Investor’s source and BTG Timberland Investment Group head Gerrity Lansing, a lot of this fresh capital will find its way to South America. One of the main reasons for this is the speed at which trees grow on the continent.

Teresa Farmaki, co-founder at Astarte Capital Partners, which launched a $250 million timber fund focused on Paraguay in 2021, told Agri Investor some trees are able to “grow one meter a month. We get 24-meter trees in two years, which is one of the key attributes of the region,” she said.

This is one of the reasons TIG has launched a $1 billion LatAm reforestation vehicle, which will seek to acquire 300,000ha of former grazing land in Brazil, Uruguay and Chile. The 15-year strategy will plant millions of trees and sequester an estimated 35 million tons of CO2, and has received a commitment of an undisclosed size from the Sumitomo Mitsui Banking Corporation.

“The carbon credit you gain from making that investment is also very solid because they are all new trees,” said Agri Investor’s source. “That’s why I think the focus for a lot of investors who would like to gain carbon credits in large scale would probably have to go to Latin America.”

But it’s not only Asian money allocated to timberland that is likely to be deployed in LatAm – LPs from the US and closely allied nations could also find themselves committing more capital to funds dedicated to the continent.

“The complexities in the relationship between the US and China have made it such that people are realizing they have to point towards Latin America as an investment location more and more,” said BTG’s Gerrity Lansing.  “If they are trying to get exposure to emerging markets, they can’t just invest in China anymore. There are other places you have to invest.”