Smith Agri International has begun fundraising for its first managed investment vehicle: a A$200 million ($131 million; €123 million) Australian timberland fund.
The Melbourne-headquartered firm is in discussions with cornerstone institutional investors for the Smith Agri International Timberland Fund, a 10-year closed-end vehicle that will invest exclusively in Australian timberland assets.
The firm expects to hold a first close on between A$50 million and A$75 million in the next six to 12 months, director David Smith told Agri Investor.
Smith Agri International is an agribusiness consultant that works throughout the value chain, from real estate transactions through to the planning, design, logistics, planting, management and export of forestry and agricultural assets.
It is proposing that the fund’s assets be managed by its wholly owned subsidiary, Virgin Forests. This includes part of the team that worked in the forestry operations team at Willmott Forests under David Smith, and which established and managed more than 56,000 hectares of commercial pinus radiata plantation across New South Wales and Victoria.
The fund is targeting an IRR of 8-18 percent net of fees and expenses. Smith said there was the flexibility to meet cornerstone investors’ preferred investment models.
He told Agri Investor that the genesis of the fund followed work conducted on behalf of a client in Australia on a buy-side mandate. This involved planning and negotiating the acquisition of private plantation assets to help the client expand from an export capacity of 250,000 tonnes to 1.5 million tonnes annually.
“Our client’s ability to deliver volume to market effectively delivered favourable terms, wherein our client could effectively pay for these plantation properties through operating profits,” Smith said.
“The downside to this model more recently has been an increasing pressure to sell land soon after harvest in order to again access sufficient capital from which to continue acquisition. The reality is that if we’re able to hold on to that land instead and re-establish the plantation, or at least take time in selling it, the returns will be much higher.
“The fund allows us to take advantage of that opportunity while also allowing us to open up supply agreements with a buoyant domestic processing market here in Australia.”
Smith said there was a shortage of commercial plantations to meet demand in both the domestic and export markets in Australia, and that the trade war between the US and China had led to a focus on alternative sources of timber, such as Australia. The fund aims to help meet that demand, he said, by providing access to Australian timberland for investors that wished to deploy capital in the country but did not have the local management structure in place to do so.
Smith said the firm had mainly been in discussions with overseas investors about the fund, but that it would welcome interest from Australian investors: “We’ve got many years of dealing with US- and, in more recent years, European-based institutional investors, and in fact it has been through their encouragement and advice that we have ultimately set our sights on the fund. So naturally that’s where we have focused the opportunity to date.”
Smith added that the firm already had a pipeline of assets in mind for the fund, but would not be drawn on specifics.
“Our business-as-usual model on behalf of the buy-side mandate has seen us successfully acquire more than 150 individual plantation properties so far, while also successfully negotiating an estimated 150-plus tree-only deals for farmers that favour retaining the land post-harvest, as part of their larger agricultural holdings,” he said.
He added that the firm had identified “some highly suitable plantation assets” in Australia, and that he could see the fund “increase dramatically beyond the targets we’re talking about and in the near future.”