EIB commits €12.5m to SLM forestry fund

The European Investment Bank has approved a €12.5 million commitment to an Irish sustainable forestry fund run by land and livestock investment firm SLM Partners

SLM managing partner Paul McMahon told Agri Investor the fund has drawn interest from institutional investors and family offices. He expects to reach a first close in the second quarter of 2016, with the project generating between 6 and 8 percent return on investment.

SLM is targeting a total of €50 million to acquire around 5,000 hectares of semi-mature clear-fell forest in Ireland, most of which the company will convert to continuous cover management.

The company’s continuous cover management approach will use selective harvesting and natural regeneration rather than clear-cutting. The sustainable management strategy will minimise risk to the fund’s timber portfolio while also providing better carbon sequestration and soil quality preservation than conventional clear felling techniques, said McMahon.

Unlike clear-cutting forest parcels every few decades, selective harvesting is likely to spread revenue generation more evenly throughout the investment period.

“This form of management really smooths out the cashflow. Every hectare generates revenue about every four years. It really is more like a bond type of return,” said McMahon.

He contrasted Ireland’s timberland market with those of Australia and the US, where large investments from institutional investors have served to bolster prices:

“The forest land prices have been very stable, there’s very little institutional investment [in Irish forestry], and because of that the asking prices are more favourable to investors,” said McMahon, adding that strong local demand and Ireland’s climate, which is conducive to rapid forest growth, also attracted his firm to the project.

The fund will largely target land developed by private land owners in response to government grant schemes aimed at driving forestation in the 1990s and early 2000s. As grants for those lands expire, many owners are eager to part with parcels that are no longer sources of passive income.

“What’s happening now is those forests are approaching maturity,” he said. “They’re approaching the time of their first thinning and their first harvest.”

McMahon said Irish government forestation grants for small parcels of land could serve as additional sources of revenue.

SLM Partners launched its first agri fund, SLM Australia Livestock Fund in 2012, and has raised more than $80 million in equity and debt for holistic grazing beef cattle operations on 480,000 hectares of land. The asset manager launched a sustainable livestock fund in 2015, targeting $100 million for acquisition and development of high-intensity sheep grazing land in Chile.