Soaring commodity prices and rising land values ‘boosting Australian forestry’

We catch up with New Forests chief executive David Brand as the firm starts to deploy its A$873m third fund dedicated to the region.

New Forests founder and chief executive David Brand has said that strong commodity prices and rising land values are creating “very strong tailwinds” in the Australian forestry sector.

Brand was bullish on investments in the country, saying record prices for hardwood woodchips and lumber, as well as near-record prices for softwood logs and steadily increasing land values in the country meant there was “nothing not to like” when it came to investing in forestry Down Under.

New Forests completed deployment of its A$707 million ($501.6 million; €437.3 million) ANZ Forest Fund 2 in July and has made some “initial investments” already using funds raised for ANZFF3, Brand added. The third fund held a final close earlier this year on A$873 million and has made some investments in New Zealand so far.

“[We’ve got] very strong tailwinds at the moment and that’s translated into returns,” he said. “Similarly if you look at the US, while the housing recovery hasn’t been quite as rapid as people would have liked, they’ve now got the tariff on Canadian timber and there’s been a second significant fire season in a row which has helped support timber prices there.”

Brand confirmed to Agri Investor the firm’s Tropical Asia Forest Fund would not be making any new investments and so is considered deployed, but does have some capital in reserve to make follow-on investments in a similar vein to the one it made in a Malaysian eucalyptus plantation this year.

New Forests has bought assets in Indonesia, Malaysia and Laos through the fund, which held its final close in 2013 at A$171 million, backed by nine LPs.

“We’ve just been steadily building up the quality of our assets [in Asia], putting in place better-quality genetics with substantially better growth and productivity, and that’s all translating into steadily improving asset values,” Brand said.

He was speaking to Agri Investor as New Forests announced it had become a member of the World Business Council for Sustainable Development, a global network of more than 200 businesses focusing on sustainable practices.

“We’re trying to move towards a much more impact-measurement type of approach,” Brand said.

“Most investment management businesses have their standard financial reporting and some kind of narrative [with that], but increasingly we’re trying to look at things like carbon storage and things like community impacts and so on.

“If you can get a framework of those kinds of indicators then you can start to get the whole sector aligned around that, and it starts to create much more transparency and ability for investors to judge good practice versus bad.”

Brand added that investors view sustainability as “increasingly important” when making decisions about where to deploy capital, and that an ability for New Forests to present its portfolio in an easy-to-use way when considering sustainability would help.

“A lot of these guys are universal investors, investing in almost all asset classes in all regions of the world, so they are looking for managers that have that capacity to understand issues that operate at a global scale and can support them understanding what their impacts and benefits are,” he said, with WBCSD membership set to help New Forests do just that.

Brand added that climate-change discussions increasingly recognized the “central role”  forestry and land-use play.

“We think that’s good for our investment programs. In the US our investment program is around forests as a climate solution, so if you can think about ways to create partnerships that will restore forests, extend forestry rotation lengths, look at sustainability in terms of forest conservation and ending deforestation, then creating transparency around that and even generating a financial return for that type of activity, it could significantly enhance forestry investment,” he said.

New Forests has almost A$5 billion of assets under management and oversees more than 950,000 hectares of land and forests in Australia, New Zealand, South-east Asia and the US.