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New Forests deal signals timberland’s attractiveness to Asia-Pacific investors

One of the world’s largest forestry asset managers is now a Japanese company, a sign of timber’s growing attractiveness to LPs from the region.

Foreign investment into Australian agriculture has come in waves, with pools of capital from different countries rising and descending in prominence over the past few decades.

In the 1980s, one of the largest sources of foreign investment was Japanese capital, which played a large role in the development of the cattle feedlot sector. The relationship continued even after some of those investors pulled back, with Japan consistently ranking among the top export destinations for Australian beef.

There are now signs that Japanese capital is consistently eyeing opportunities in the sector again, although this time focused on timberland.

The big news last week that Mitsui & Co and Nomura acquired Sydney-headquartered asset manager New Forests is significant, as it now means the second-largest forestry manager worldwide is a Japanese company.

Mitsui first acquired a shareholding in New Forests in 2016, and both firms said they were attracted to the deal because of the possibilities that timberland offers for helping to address climate change and conserving nature.

New Forests has also secured LP commitments from the Asian Development Bank and Temasek for its Tropical Asia Forest Fund series, while Mitsui & Co affiliate Sumitomo Mitsui Banking Corporation was also an investor in TAFF2.

And they aren’t alone: 2021 saw Development Bank of Japan invest in Timberland Investment ResourcesEurope Forestry Fund II, while the National Pension Service of Korea committed $150 million to Stafford Capital Partners International Timberland Fund IX in 2019.

Timberland investments, and farmland perhaps to a slightly lesser extent, are placed neatly at the crossroads of two trends for these LPs.

Firstly, there is an increasing recognition of the opportunities that investing in alternative assets can provide, as shown by the willingness of LPs in the region to commit more capital to strategies in asset classes such as infrastructure.

And secondly, the need to improve ESG credentials and the increasing maturity of carbon credits makes forestry assets an enticing prospect, as owners can either bank the credits generated for their own offsetting purposes or sell them to create a viable alternative revenue stream.

The sale of New Forests is emblematic of this increasingly open attitude and taking ownership of such a high-profile player in the space demonstrates how seriously Asia-Pacific LPs are taking the asset class.

Agri Investor will hold its first-ever Tokyo Forum on September 14 this year – don’t miss your chance to join us and discuss what Japanese investors are looking for when it comes to natural capital investments.