It’s a humid morning in Sydney, with drizzle in the air, as David Brand and Mark Rogers of New Forests sit down together for a rare joint interview.
The pair are here together with Agri Investor following the January 2023 announcement that Rogers had been appointed the firm’s new chief executive officer, taking up the role on April 3.
He is, of course, replacing the outgoing CEO David Brand, who founded New Forests in 2005 and has overseen the asset manager’s remarkable growth story through almost two decades that have included two of the most significant economic crises seen in the last 100 years.
We are sitting in a meeting room in North Sydney, at the firm’s offices, with an expansive view of the Sydney Harbour Bridge and the waters beneath it in the distance.
Brand and Rogers were at a dinner the previous evening with other New Forests staff to celebrate the closing of Mitsui & Co and Nomura’s deal to buy the firm – announced publicly as far back as May 2022.
“It was nice to sit down finally and mark the milestone,” Rogers says, explaining that it has taken so long for the deal to complete due to various foreign investment review processes in the countries in which it operates (New Forests usually owns a very small percentage of its assets alongside its fund investors).
Heads seem clear this morning, though, and Brand takes the opportunity to reflect on the acquisition of his business. “It’s interesting to see what’s happened to the forestry sector. We’ve seen Campbell Global go to JPMorgan Asset Management, International Woodland Company has just been sold to BNP Paribas – it’s like the sector is being pulled up to another level in terms of the capacity behind it,” he says.
“I think that’s a recognition of the idea that forestry and agriculture is morphing into this new kind of natural capital agenda, and people are seeing an opportunity to really push this as a new asset class.”
Brand adds that it’s “a great opportunity for you”, referring to Rogers sitting beside him.
Rogers says the timing of the Mitsui and Nomura deal is vital. “When you see some of your competitors on steroids, going into these bigger houses, you start to think about how you can keep up,” he says.
“When David founded the company, he always had the vision to make us the biggest player in the space and over time we’ve had pretty rapid growth. When you see some of these bigger companies buying funds management businesses to supercharge them, it was a perfect time for us [to consider that].”
New Forests’ origins
It is a big change for the business, which Brand founded in 2005 with, as he puts it, “four staff and a million-dollar loan.” He was a director at Hancock Natural Resource Group in Sydney at the time, leading a management buyout of the Australian forestry business unit to launch New Forests.
Initially, the firm would buy and manage forestry assets on behalf of other investment management companies as part of their broader portfolios. But the global financial crisis in 2008 changed things.
“That’s when we decided to step up and become a funds management business, and we raised a A$500 million fund ($332 million; €311 million). And then in 2010, that was the right moment, as the managed investment schemes all went bankrupt.”
“Some of those assets have proven to be some of the best investments, probably, in the history of forestry.”
The managed investment schemes were launched in the Australian market following the passage of the Managed Investments Act 1998 by John Howard’s government and were initially very successful as they offered participants full tax deductions on their investments upfront. The schemes then pooled the money raised to buy agricultural production assets – but a combination of multiple factors, including but not limited to poor management decisions and high upfront costs for establishing plantations, meant that many high-profile MIS failed, resulting in bankruptcies and lost funds for investors.
One of the schemes to fail was Great Southern Plantations, which owned and operated more than 250,000ha of land across six Australian states before being placed into receivership in May 2009. New Forests’ Australia New Zealand Forest Fund, alongside Alberta Investment Management Corporation (AIMCo) acquired Great Southern’s assets for A$415 million in early 2011, in one swoop completing the largest private forestry estate transaction in Australia to that date (as well as a decent-sized farmland portfolio).
New Forests subsequently acquired more than 200,000ha of assets from Gunns Ltd in Tasmania for A$330 million, cementing its position as a major player in the ANZ forestry sector. (New Forests wasn’t the only asset manager to benefit: Global Forest Partners acquired the assets of Timbercorp, another MIS, for A$345 million in another deal that has worked out very well.)
“We were just so perfectly positioned to buy [those assets],” Brand says. “Some of those assets have proven to be some of the best investments, probably, in the history of forestry.”
Brand says that, as the only major Asia-Pacific headquartered forestry manager, New Forests has also benefited from a “tremendous China dividend”, pointing out that China was a net exporter of woodchips in 2005 when he started the firm, to become the largest importer of that commodity in the world today.
“I would also add that, when we started doing this, around 90 percent of all timberland investment was in the US – that’s now down to around 60 percent, largely because Australia and New Zealand have become the second major institutional investment destination for forestry. I think we’re now probably 25-30 percent of the global market here,” Brand says.
“We’ve been right in the thick of that. And as a result of all that, I think we’ve had pretty much market-leading returns – in 18-and-a-half years now, we’ve never had a year with negative returns, and we even had positive returns last year while the rest of the market was tanking. It’s been a tremendous run for our clients.”
Which leads us to the present, as New Forests becomes a majority Japanese-owned business.
Under the deal, announced in May 2022 and closed just prior to the dinner before our interview, Mitsui & Co increased its existing shareholding in New Forest to 49 percent (from 23 percent previously) and financial services group Nomura acquired a 41 percent stake. New Forests staff will retain the remaining 10 percent.
As part of that, Brand will begin to phase out of the business, although he will remain chairman until the end of June 2025 after he hands over the CEO reins, with a remit to focus on strategic initiatives and growth opportunities.
“Nomura is a significant player globally in the distribution space, so our ability to tap into a larger pool of investors is going to be supercharged.”
Brand says he was approached just before the covid-19 pandemic about investing in New Forests and that he “swatted them away” at the time. However, as the pandemic took hold, he considered that the firm had a huge opportunity to grow, but it would be difficult to do that without recapitalizing the business – and that this presented a logical exit opportunity for him.
Rogers reiterates the “perfect timing” of the deal for New Forests as a business.
“We had a great group of initial investors that were good start-up investors in our business – but I think in essence they were capital constrained, really, and we were just using the capital in the business to keep pushing it forward,” he says.
“Nomura is a significant player globally in the distribution space, so our ability to tap into a larger pool of investors is going to be supercharged. And dealing with a big corporate like Mitsui, the exposures they have in certain markets and the strategic way they think about growing their business is going to push us into new spaces – which when we start talking about natural capital is a really exciting thing to think about.
“And they also bring some balance sheet to us, so we’re not constrained and we can start thinking about additional things and the scope of our business development opportunities grows with their desire to see us grow.
“We could have been absorbed into a big funds management business, where we would have become middle management there and maybe lost a bit of the magic sauce that New Forests [had] under Dave’s leadership, which probably wouldn’t have been as attractive to some of the people here who are passionate about the vision, mission and purpose of the business. Mitsui and Nomura will be powerful allies, but they will quietly support the business behind the scenes, rather than do anything dramatic.”
The first board meeting took place in the week prior to our interview, and Rogers says the agenda covered the potential for business development in areas such as prospective new geographies for investments, different products that could be launched in the natural capital space and even potential M&A activity.
The future of New Forests
Rogers says he has three main priorities as he moves into the CEO’s chair.
First, he wants to further globalize the firm’s operations, as it has become a large organization with more than 100 employees across multiple geographies. “We want to make sure we are nurturing and growing talent, and keeping the business efficient as we grow, so that we don’t get fat and bloated around the world, with geographies operating in silos,” he says.
“We’ve been growing 20 percent-plus each year, so those are big shoes to fill, and we’ve got to think outside the box to keep that going.”
Second is to engage a broader set of investors. “We’ve had a small but loyal group of investors from the start, who have constantly reinvested in the business. And that’s nice because it shows faith in the investment strategies and mandates, but it is restrictive because you are constrained the smaller your investor base is. So our ability to go out beyond those more constrained buckets [of capital] into different buckets […] is exciting,” he says.
“A market we haven’t quite cracked is institutional money from Japan, which is slow to move. Tapping into that [Nomura’s distribution network] will give us exposure sooner to a lot more investors than we have been able to get over the past 18 years.”
And the third focus is on growth generally, with an eye on business development opportunities. “We’ve seen this in the forestry space, and also in infrastructure as well: if you don’t find something that takes you over that stall point and continues your growth profile, you tend to stall at a certain point.
“We’ve been growing 20 percent-plus each year, so those are big shoes to fill, and we’ve got to think outside the box to keep that going.”
A hope for this growth is the emergence of natural capital as a distinct asset class, which includes the obvious areas of forestry and agriculture but encompasses other elements.
“The language is changing completely,” Rogers says. “We used to talk about timberland: trees and wood. Now we talk about natural capital, fiber. And when you add the externality piece on top of that, like carbon, biodiversity, water, and can get that factored into pricing through voluntary or regulated markets, then fiber will compete with food.”
This, Rogers says, can mean that landscapes can be used for things beyond solely agriculture as the “highest and best use” of land will become a combination of traditional agriculture or forestry, and other things like carbon sequestration or biodiversity restoration.
“There has been a recognition – first with climate but now around biodiversity – that is going to transform the nature of the asset class.”
Brand says this approach represents something like coming full circle for New Forests. “When we started the company, my aspiration was to think differently about forestry as a type of natural infrastructure, with all these positive externalities,” he says.
“It’s been a long time coming, but someone joked to me recently that the world has finally caught up to us after 17 years. People are seeing an opportunity to really push into a new asset class.”
The big question remains: will LPs begin to carve out dedicated allocations to natural capital?
“We have an investor from Sweden who has been with us since our first fund. That first fund investment came through a timberland allocation in their real assets portfolio. In our fourth fund now, they’re considering coming in through their natural capital allocation. LPs, particularly on the pension side, do feel social pressure – and that’s continuing in our space, and they see the opportunity to add social value alongside the investment value,” Rogers says.
“We’re also talking to people now who have never had an allocation to forestry or agriculture. [Natural capital] is expanding that real assets mentality.
“Obviously markets went through a tough time over the last 12 months, but we’re seeing that not a lot of [LPs] have been able to pause because they simply have too much inflow, so they’re still going to get it allocated,” says Rogers.
“The change in interest rates will be interesting for portfolio construction, it’s going to make the bigger LPs think about their allocations – but most of the existing clients that we have are allocating more and they’re growing. It’s similar to what happened in infrastructure – allocations to that asset class were 1 or 2 percent when it started and now most large portfolios have real asset allocations of 15-20 percent. We’re seeing forestry and agriculture being dragged along with that.”
And this, ultimately, is what both Brand and Rogers believe will keep fueling the growth of New Forests: being well positioned to take advantage of an increase in investor interest in a growing asset class.
“There has been a recognition – first with climate but now around biodiversity – that is going to transform the nature of the asset class,” Brand says.
“To win in that space, you’ve got to have somebody behind you that has the capital to support the growth of the business.”
That’s what has brought in Mitsui and Nomura, and what has prompted Brand to begin his exit from the firm. It’s been an eventful 20 years. The industry will be watching closely to see where New Forests goes next under new leadership.
New Agriculture’s progress
In 2022, New Forests launched New Agriculture, a business division dedicated to farmland and agriculture investments. Although farmland has been part of New Forests’ portfolios since that first transaction to acquire the assets of Great Southern Plantations, this represented the first time it set out agriculture as a separate area of focus.
Led by Bruce King alongside a small team, Rogers says New Agriculture has been “beavering around in the background” since the acquisition of Lawson Grains (alongside old partner AIMCo) closed.
“We have a single investment at the moment, Lawson Grains, and we are seeing a lot of dealflow, which is really exciting,” Rogers says. “It’s now a matter of matching the capital to the dealflow.”
And as it is still a new segment for New Forests, Rogers says the firm does not plan to launch a dedicated farmland or agriculture-focused fund yet.
“We’re in discussions at the moment on a couple of transactions and with a couple of additional clients. We see significant potential growth. We’ll stay on the mandate track for the moment as we have AIMCo, who want to do more with us. Once that helps us establish a broader skillset and a platform, then a fund product could sit more naturally alongside that. [Raising a blind pool fund] requires a bit of history and some empirical evidence [of performance], so by doing the mandates first we can develop that quickly.”