*with updated output figures and forest rotation potential.
New Forests Australia and New Zealand Forest Fund II, which closed on A$707 million in March, has closed its fourth deal with an investment in 175,000 hectares of forest alongside two institutional co-investors.
The Fund and its co-investors bought stakes in Forico, a newly-created timber plantation, forest management and timber export business in Tasmania, which was established to hold the 175,000 hectares bought from Gunns Limited, the managed investment scheme management firm that went into liquidation in September 2012.
The deal was announced in May but has just completed.
New Forests would not disclose who the co-investors were but the deal comes as increasing numbers of institutional investors start to prefer investing directly into agri and timber, particularly if they have built up a good relationship with fund managers over the years.
“Many of our clients now are getting comfortable with us as a manager and the types of assets we have been acquiring over the past five to six years so they are interested in deploying extra capital into larger deals,” said David Brand, chief executive of New Forests.
Last week, AP Fonden 3, the Kr258.5 billion ($37 billion; €28 billion) Swedish pension fund and existing investor in New Forests’ Fund I, told Agri Investor it was looking for more direct opportunities in the asset class. Although AP3 was not a co-investor in this deal, according to Bengt Hellström, head of alternative investments.
The undisclosed investment in Forico – New Forests does not want to share pricing with competitors – will contribute to an improvement programme across the predominantly eucalyptus plantations including fixing equipment, strengthening the plantation quality, improving genetic materials and forestry practice, according to Brand.
“It’ll be a business with huge operations,” he told Agri Investor. “We can produce two million tonnes of wood chips which are worth about A$175 each so there is a huge revenue base.”
Other investments made by Fund II include the acquisition of 21,000 hectares of forestry estate in Green Triangle in Western Australia – Eucalyptus plantations – and of some pine plantations in New Zealand, said Brand.
Now is a great time to be investing in Australian and New Zealand forestry markets due to the near collapse of other markets globally that rely on naturally grown forests such as Russia and Canada, according to Brand.
“Russia has collapsed in terms of a timber harvest, Canada is now starting to decline and the US timber harvest peaked in 1989. Indonesia and Malaysia’s production is half what it was 20 years ago,” he said. “So there is a really clear trend that timber plantations in Australia and New Zealand are becoming the primary source of supply growth globally. And this is in the face of increased demand from emerging markets such as China and Southeast Asia including India.”
Australia and New Zealand are well positioned to pick up on this supply because of the potential to grow forestry plantations – a potential not available in the Northern Hemisphere due to the growing conditions.
“Forests in the Northern Hemisphere have a two month growing season so can take 50 – 100 years to grow to maturity; we have a 12 month growing season so can have a 10- 30 year rotation on our plantations,” said Brand. “It’s really fascinating having worked in the sector for 35 years to now see a real restructuring of the markets and the rise of plantations as sources of wood.”