Post-pandemic momentum continued for timberland markets in 2023, as new entrants inspired by the carbon sequestration potential of forestry integrated themselves into the market. As the size and character of LPs and corporates finding a function for timberland within their portfolios has grown, so too has appetite among veterans and newcomers to explore key Latin American markets.
BTG Pactual’s Timberland Investing Group began in 2013 as part of a Brazilian bank that had been investing in the asset class since 1981. In April, BTG Pactual’s Gerrity Lansing told Agri Investor that global attention on wildfires during the administration of Brazil’s previous president Jair Bolsonaro had the paradoxical effect of reminding investors just how pivotal South America’s forests are in managing global emissions.
“The faster a tree grows, the faster its going to sequester CO2, so naturally, from a pure climate perspective, the bigger opportunity is in Latin America,” he said.
Geopolitical tensions have also played a role in increasing focus on Latin America among managers eager to deploy institutional capital coming into timber, Lansing added.
“People are realizing they have to point towards Latin America as an investment location more and more. If they are trying to get exposure to emerging markets, they can’t just invest in China anymore,” he said.
BTG Pactual’s restoration fund has a strategy calling for reforestation of degraded land in Brazil, Uruguay and Chile to produce carbon credits and market rate returns while protecting and restoring 140,000ha of native cover. In April, Apple announced a $200 million expansion of its Restore Fund strategy, which it established in 2021 through a $200 million collaboration with Goldman Sachs and Conservation International, to support a strategy producing carbon credits through timber and reforestation projects in Brazil and Paraguay.
A September analysis of timber funds in market captured by the Agri Investor database found Latin America to be the largest single regional focus, with a $3.45 billion haul that surpassed even the next largest category of $1.5 billion raised for diversified strategies. Chile and Brazil are the most important timber markets in Latin America and investor sentiment on the region is often shaped by developments in the latter.
Since assuming office in January, President Luiz Inácio Lula da Silva has made reforestation and global leadership on environmental issues a focus of efforts to distinguish himself from his predecessor through steps that have included efforts to strengthen its domestic carbon market.
A late 2022 Manulife analysis noted Brazil’s well-developed governmental and non-governmental framework regarding sustainable forestry, along with its status as the world’s leading hardwood pulpwood producer, as factors leaving Brazil’s timber market well-positioned for the long term despite near-term economic headwinds.
In Chile, recent years have seen the country’s longstanding reputation for favorable business conditions dented by a 2019 spike in social unrest that has been followed by fierce debate over constitutional reform.
Although voters rejected reforms to the country’s 1980 constitution in December, the future of regulation and tax policy remains uncertain, which could have implications for foreign investors who have made the country a feature of global timber strategies.
The year ahead will find investors monitoring political and sustainability developments in the region closely as they look to expand timber portfolios in a way that can balance old and new demands on the asset class. The challenges they are likely to encounter are not new, but sustainability has put the fundamentals of Latin America’s forestry resources in a new light.