A range of UK pension funds and other institutional investors have backed the Forest Fund VI, which aims to support biodiversity preservation and flood mitigation.
Gresham House, the London-based alternative asset manager, has announced the final close of its Forest Fund VI, having raised £375m (€446m) which is expected to sequester 4.7 million tonnes of CO2 over the next 25 years.
The Gresham House Forest Fund VI also aims to contribute to biodiversity preservation and flood mitigation.
Institutional investors who backed the fund include London CIV, multiple Wales Pension Partnership member funds, and a Japanese investor, according to Gresham House, who added that the close marked its largest-ever forestry fundraise.
Existing investors of the fund include UK Local Government Pension Schemes and high-net-worth individuals.
Last year, South Yorkshire Pensions Authority committed £50m to the fund, which aims to generate an 8% internal rate of return through the harvesting and sale of sustainable timber.
“This milestone fundraise is a clear reflection of the increasing global recognition of European forestry as a compelling asset class,” said Olly Hughes, managing director of forestry at Gresham House.
“As the transition to a lower-carbon economy accelerates, demand for sustainably sourced timber continues to rise, driven by government initiatives and the growing adoption of wood-based construction materials,” he added.
Last year, the UK government introduced a new target aimed at promoting biodiversity, which means developers operating in England need to achieve a biodiversity net gain (BNG) of at least 10% for their sites to be granted planning permission. If they cannot generate the required gains themselves on site, they will need to do so elsewhere or buy verified credits from other parties, as reported by Impact Investor.
As a result, a new market for biodiversity enhancement has been established, unlocking private investment for nature recovery. This potentially gives forestry investors a way to make returns while helping to restore nature, meaning they can sell BNG credits to developers who need to meet environmental rules.
Furthermore, Gresham House said that the capital raised in the final close will be deployed in a combination of unplanted land for productive woodland creation and established forests across the UK.
Currently, the fund’s asset portfolio comprises just over 6,000 hectares across 12 properties in Scotland and Wales, while helping to create rural jobs and sustain local economies, the firm said.
Growing demand
UK institutional demand for natural capital has gained momentum in recent years, with 73% of UK-based asset owners saying they would invest in natural capital in order to support climate adaptation, according to a report commissioned by Gresham House.
Commenting on the fund’s closure, Cllr Elwyn Williams, chair of the joint governance committee, on behalf of the investing member funds of the Wales Pension Partnership, said: “Forestry offers the compelling combination of uncorrelated financial returns and measurable environmental benefits, from boosting biodiversity to contributing meaningfully to carbon sequestration.”
Gresham House, which currently manages £3.4bn in forestry assets, added that, where appropriate, investors in the fund will receive distributions in the form of carbon credits, which may be sold to provide an additional return or retained for carbon insetting purposes.
Vanessa Shia, head of private markets at London CIV, said: “Gresham House Forest Fund VI LP will deliver stable, long-term returns for our clients while actively tackling climate change and supporting ecosystem preservation. We view forestry as a core asset class and a key pillar of our LCIV Nature Based Solutions Fund.”
