GEF’s top tip: look up

Timberland asset managers in emerging markets are missing out on extra returns by not using the whole tree, said Jeffrey Leonard, president and chief executive of African forestry manager Global Environment Fund.

Speaking at Tuesday’s Private Equity in Emerging Markets conference in London, Leonard told delegates that often 50 percent of tree fibre is wasted in sawdust, branches on the land and more. “If you can use the treetops you can make a lot of money and this is where we get our alpha,” he said.

“Investors often see timberland as a bond-like investment, and in many ways it is, but there is also potential for far greater returns if the trees are managed wisely,” he added later to Agri Investor.

GEF makes use of this often-wasted wood in various ways such as selling wood pellets for biomass, selling poles to banana farmers and selling sawdust to furniture companies to make MDF boards.

Some of these products involve making markets for products where they did not exist, such as providing poles for the expansion of electricity lines across Africa.

Another area where some management firms slip up is in harvest planning, said Leonard. This involves knowing what the end product will be for a certain plot of trees and organising the infrastructure accordingly.

GEF recently launched GEF African Sustainable Forestry Fund II which is targeting $200 million. It expects a few repeat investors from ASFF I, which closed on $160 million in 2010 after attracting commitments from CDC, the UK-based development finance institution and other DFIs. GEF is also speaking to private investors about making commitments.