New Forests, the timberland asset management firm, is aiming to close its Eco Products Fund for the first time during the third quarter of this year, according to David Brand, founder and chief executive of the firm.
The US-centric fund is targeting $200 million in total and New Forests is currently in talks with around six investors that are doing due diligence. They are family offices and endowment funds, said Brand.
The fund will purchase forestry and wetland assets with the purpose of selling carbon credits and wetland mitigation credits to large corporations such as oil companies and highway construction companies that are required to own a certain amount, depending on the development in question.
“Mitigation banking is quite a big business now,” said Brand. “The clear water act stipulated that there must be no net loss of wetlands and other aquatic systems in the US, so companies seeking development permits must agree to mitigate their impact on such land. This has created a market for ecosystem restoration in the US and it is highly profitable.”
New Forests will buy land and restore it into natural wetland systems by returning streams to their normal flow and ripping out concrete, for example. The land is then accredited by the government as a number of units of restoration which New Forests can then sell on to a developer.
“These developers have no other mechanism of reducing their impact so this is a big market,” said Brand. Wetland mitigation credits can vary in price from $6,000 an acre to as much as $300,000 an acre, he added. “You can be very profitable if you are disciplined about doing work well and in the right market — it is highly bespoke for each region and the wetlands have to be restored into the right water system.”
Holding these credits, New Forests has five mitigation banks across Indiana, North Carolina and Texas, and the firm is looking for more to invest into in the US. There are 1,200 of these banks operating in the US and New Forests will “act as a consolidator to buy out some of them and convert them into proper management farms,” said Brand.
Around 30 percent of cases will be greenfield projects where New Forests will need to do all the development work, but in other cases New Forests will act as a liquidity provider by buying existing wetland credits, taking on less risk for higher return, according to Brand. “This will be how we bulk up the business,” he added.
New Forest will pursue a similar strategy with carbon credits. It has recently helped an Indian tribe to transition to a conservation management approach to their land, enabling it to release carbon credits for sale.
“The ecological restoration market is worth around $1 billion and is growing 20 percent each year,” said Brand.