New Forests converts ANZ Forest Fund to semi-permanent structure on 12-year terms

The firm’s first regional Australia-New Zealand fund will convert from a 10-year closed-end fund in a move that could be replicated in its other funds.

New Forests will extend the life of its flagship forestry vehicle, Australia New Zealand Forest Fund, by converting it from a 10-year closed-end structure into a semi-permanent vehicle with rolling 12-year renewal periods.

The fund held a first and final close on A$490 million ($314 million; €291 million) in October 2010. Its new structure will take effect on 1 July after receiving approval from all its investors.

The fund’s assets include four plantation timber estates, two of which are primarily hardwood and two of which are primarily softwood, as well as the Timberlink Australia and Timber New Zealand sawmilling and timber products businesses. The assets cover 283,000 ha of gross land area, including 195,000 ha of net planted area.

Only two investors will exit the fund as a result of the changes to its structure. Both had subscribed to ANZFF through funds of funds with set terms of 10 years. One of the investors is related to another investor in the fund, and has transferred its units to that entity. The units held by the other investor have been bought out by ANZFF itself.

New Forests said initial conversations on the extension began in 2015 as it recognized that the fund’s assets held “significant long-term value.” The 12-year fund life will automatically renew unless investors decide otherwise.

The Sydney-headquartered fund manager said the new structure suits the “longer-term investment view of our institutional clients, who are looking to match long-dated member liabilities to real assets that produce short-term realized return and long-term capital preservation.”

The vehicle’s investors include pensions, sovereign wealth funds and reinsurance companies.

On whether the new structure could see further assets acquired in a similar manner to many fully open-end funds, New Forests’ director of sustainability and communications MaryKate Bullen said: “The expectation is that the portfolio is set, although some buying and selling at the margins could occur and Timberlink will continue to make strategic investments in its business, such as the recently announced combined Cross Laminated Timber and Glue Laminated Timber plant.”

New Forests declined to disclose ANZFF’s returns to date, but said: “We believe the fact that the clients have extended their hold of the fund speaks to the nature of the fund’s performance.”

ANZFF was initially deployed within 18 months following the global financial crisis and its success led to two further regional funds in the series: Australia New Zealand Forest Fund 2, which closed on A$707 million in 2014, and Australia New Zealand Forest Fund 3, which closed on A$873 million in 2018.

Both funds were also created with 10-year closed-end structures, and New Forests said that the new semi-permanent model “could certainly be replicated” in its other vehicles.

On the impact of the coronavirus on the forestry sector, Bullen said: “The covid-19 pandemic has again demonstrated the resilience of forestry investments.

“Valuations are stable, markets remain intact, and while demand is softening in the Australian construction sector, export markets to China are still strong. The ultimate value of the forestry assets in these times is as a store of value, as trees continue to grow and build value, and can ride out short-term market corrections.”