Stafford secures £100m anchor for $1bn carbon offset fund

Essex Pension Fund becomes the first LP to commit to Stafford’s first timberland fund which has carbon credit revenue built into its returns profile.

Stafford Capital Partners has secured a £100 million ($114 million; €113 million) anchor commitment from Essex Pension Fund for its new Stafford Carbon Offset Opportunity Fund.

The timberland vehicle has a $1 billion target and was launched in the summer. Essex is the first LP to commit to the fund, Stafford timberland co-managing partner Stephen Addicott confirmed to Agri Investor, who added that several other LPs are at the due diligence stage.

Stafford is predominantly a secondaries investor and it has used this approach when deploying its long line of timberland vehicles, the ninth iteration of which closed on $695 million in 2021. But the firm will pursue greenfield investments for this fund due to a lack of a mature market.

“Carbon funds by their nature are still immature, they’re only just starting to be raised. And so that means of accessing the market by secondaries is not possible,” Addicott told Agri Investor.

The firm has designated the carbon vehicle as an Article 9 impact fund and has chosen a 20-year term and a closed-end structure.

The vehicle will aim to deliver cashflow by its fifth year through carbon credits, the majority of which will be marketed on voluntary markets.

Stafford is aiming to deliver returns in the high single digits or low double-digits, confirmed Addicott. He added that, since there is significant upside yet to be realized in the price of carbon credits, the vehicle could outperform its predecessors given that it will also deliver returns from forestry products.

“Returns coming from carbon credits is something that is very difficult to put a finger on exactly what that will be,” said Addicott. “But I’d say given the way the market has developed over the past couple of years, we’ve seen that there’s more upside on this fund than our traditional funds because of those carbon credits.

Addicott notes that it is possible to get carbon credits with traditional brownfield investments, “but you have to do something additional, you have to change the way you manage the forest. With plantation and afforestation, you’re actually taking a piece of land that has a low carbon baseline and planting forests to create a new carbon bank on that piece of land.”

Stafford expects 45-50 percent of its cashflow to come from the sale of credits. The firm expects to hit a first close before year-end and is aiming to complete fundraising on the $1 billion on by Q2 2024.