New Forests targets A$600m for ANZ Landscapes and Forestry Fund

New Forests has begun fundraising for its latest ANZ-focused forestry vehicle, the Australia New Zealand Landscapes and Forestry Fund, targeting A$600 million ($409 million; €388 million).

The firm said the fund would make investments into core forestry plantations alongside processing and logistics companies, with some exposure to primary agricultural commodities, providing investors access to “integrated forest, land and agriculture markets in Australia and New Zealand.” The fund will also pursue carbon sequestration and emissions reduction opportunities.

ANZLAFF is structured as a 15-year closed-end fund with potential to expand its term. It is the firm’s fourth fund focused on Australia and New Zealand, the most recent of which, Australia New Zealand Forest Fund 3, closed on A$873 million in 2018. ANZFF2 closed on A$707 million in 2014, while the first ANZFF closed on A$490 million in 2010 before converting to a semi-permanent structure in 2020.

Speaking to Agri Investor, New Forests senior managing director, Australia, New Zealand and the US, Mark Rogers, said the strategy would see the firm come “full circle” back to a similar allocation to that which it pursued with its first ANZ-focused fund.

“We had the allocation that way [then] because we thought a lot of trees that had been planted would [be on land] that would need to come out of forestry and go back to agriculture because those plantations were sub-optimal in their economics, or their location to markets. But we still wanted to hold the landscape together in the same way we do now,” he said.

“Now you flip it – the fund is still focused on core sustainable plantation forestry assets but we want a broader piece of the landscape because we think we’re going to be replanting trees now. It’s the same mandate with the opposite outcome, which is a wonderful twist for us [because] we want to see the reforestation story progressing very quickly.”

Rogers said New Forests was targeting A$600 million for ANZLAFF despite raising A$900 million for its most recent previous ANZ-focused forestry fund because it was a figure better suited to the pace of capital deployment in forestry in the region.

“It took us a bit over an extra year to deploy [our last fund] and we found that the pace of deals is at a cadence that suits a A$600-A$700 million fund better than one beyond that. We’re scaling the fund to suit the asset class and the amount of dealflow in the market, and we think this is about right.”

Rogers said the fund would buy agricultural land near the plantation forestry estates it acquires, giving investors exposure to some agricultural commodities in the broadacre cropping and livestock grazing sectors. These assets will be managed by the team at New Agriculture, the farmland asset management division established by New Forests earlier in 2022.

Carbon sequestration will also form a part of the investor returns, Rogers said, with the potential to establish permanent plantings as carbon prices increase and markets mature.

“If you look at New Zealand, where the carbon price has been hovering around NZ$80, prices like that mean you start to see a shift in the use of the landscape. New Zealand is having to deal with that question about permanent plantings: are parts of the landscape going to be used as carbon banks?

“That’s completely appropriate but one nuance the New Zealand government has said is that they don’t want that formed in exotic species – they would rather see it formed in native species, so establishing permanent conservation areas, if you will, that act as carbon banks.

“In Australia, I think there is a bit less social pressure around using some of the landscape to be a carbon bank or mitigation banks for other things like biodiversity credits, because we’ve got a much bigger landscape. And Australia is still a net importer of wood fiber – it’s quite embarrassing, really.

“When you diversify across Australia and New Zealand, it’s a wonderful investment play because they are quite different in that context. There is a very strong domestic softwood market in Australia and a very strongly focused export market into Asia in New Zealand.”

Rogers said ANZLAFF is targeting a final close in 2023, with a “substantial” first close likely in Q1 2023.