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IWC eyes secondaries, co-investments – exclusive

The timber multi-management firm's fund recently made a secondary co-investment.

The International Woodland Company (IWC), a forestry-focused fund of funds and investment management firm, expects to increase its investment in secondaries and co-investments.

The firm’s recently closed $230 million Fund I has already done five deals including one secondary co-investment, according to Markus Weikert, director of business development.

“We are complementing our investment approach slightly towards more secondaries and co-investments due to the pricing environment today, which is competitive across regions,” said Weikert. “With the huge amount of capital being raised at the moment we think that investing in secondaries and co-investments is a good way to protect investor capital.”

He added: “We also believe there will be fairly favourable exit environment over the next few years.”

The 15-year fund has a two-year investment period and could be exiting some of its secondaries investments after just five years, capital that will be redistributed to investors and provide some early income.

“These early distributions can compensate some of the more greenfield assets in the portfolio that can be very back-ended with their returns, especially in the competitive acquisition environment,” said Weikert.

IWC closed its fund of funds – named IWC Timberland Partners – on $230 million in the first quarter of this year after raising capital from institutional investors. Weikert would not disclose further details about the fund’s investor base.

He said the fund was launched to accommodate investors that could not make commitments big enough for a separate account – discretionary mandates account for the bulk of IWC’s $3 billion in AUM.

“And we thought there were also some very compelling investment opportunities that didn’t fit into the larger mandates because they were too small to justify our clients doing the due diligence,” said Weikert.

IWC targets internal rates of return, net of all fees and costs, of between 5-10 percent. When asked about the extra layer of fees passed on to investors, Weikert said this was an attractive return target for investors for whom a fund of funds structure make sense. He argued part of IWC’s ability to offer these returns was down to strong fund manager relationships and the ability to negotiate on fees with them. “We can also create a deal flow that would be hard for an LP to do on its own; although of course there are some of the larger institutions that could do it themselves in-house,” said Weikert.

Multi-manager strategies are a good tool for investors to enter the asset class for the first time and gain essential global diversification, according to Weikert.

“It is also a challenging environment for deploying capital given current prices that are very high,” he added. “But if they mandate us for a multi-manager strategy we are able to work alongside managers on targeted opportunities where we can get a bit more discipline on underwriting and operational strategy. This also creates a good base to do secondary investments from.”

Across IWC’s discretionary accounts around 90 percent is invested in commingled vehicles, primarily primary funds, with the remainder in secondaries and co-investments. It is difficult to say how much the latter portion will increase, said Weikert.