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Potential for Institutional Investment in Australia’s Forestry Sector. Presentation to ABARES Outlook 2011, March 2, 2011, Canberra, Australia David Brand Managing Director New Forests Pty Ltd dbrand@newforests.com.au +61 2 9406 4100 www.newforests.com.au. About New Forests.
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Potential for Institutional Investment in Australia’s Forestry Sector Presentation to ABARES Outlook 2011, March 2, 2011, Canberra, Australia David Brand Managing Director New Forests Pty Ltd dbrand@newforests.com.au +61 2 9406 4100 www.newforests.com.au
About New Forests • Investment management business established in July 2005 • 24 employees, head office in Sydney, with regional offices in San Francisco and Kota Kinabalu, Malaysia • $1 billion in assets under management for superannuation funds, pension funds, reinsurance companies, and endowments • New Forests’ Australia New Zealand Forest Fund, closed in 2010 with $500 million in capital commitments • Purchase of Great Southern land bank in partnership with Alberta Investment Management Company • Also in train to close SE Asian Forestry Fund in mid 2011
Institutional Investment in Forestry • Approximately $40-50 billion invested in forestry or ‘timberland’ asset class by institutional investors • Has grown steadily for over 20 years • Attractive characteristics: • Low volatility in total returns • Positive correlation to inflation • ‘Real Asset’ with low correlation to many other asset classes • Overall portfolio diversification benefits
Structure of the Global Forestry Sector • Three components of global timber supply: • Extensive natural forests operating as an ‘economic margin’ (eg Canada, Siberia, Indonesia) • Semi-natural production forests (eg USA, Europe) • Intensive plantation forests (eg Latin America, Australia, New Zealand) • Frontier of natural forest supply diminishing and being restricted by policy decisions (eg Boreal Forest Accord, Indonesian Agreement with Norway, Siberian Export Tax, Tasmanian Agreement) • As timber demand and prices rise to meet cost of capital, marginal investment is beginning to flow to plantation forestry regions
Global Demand • Global timber markets include softwood timber for housing, softwood and hardwood timber for pulp and paper, and feature grade timbers for furniture, flooring, etc. • Large Scale Restructuring is occurring: • US housing market has collapsed • China’s imports rising by 50% per annum • Biomass energy and bio-materials rising • Investment flows moving towards timber plantations in southern hemisphere and tropical regions • Depletion of tropical forests vs demographics
Outlook for Australia • In Australia, the land and the timber plantation are separate assets • Government privatizations have locked in forestry land use, but on private land forestry must compete with a myriad of other land uses and commodities • Investment in forestry is based on markets 10 to 20 years away—very unusual investment and therefore investors look for ‘entry assets’ with existing cash flow and market exposure
Outlook for Australia • Over $2 billion of institutional investment in Australian plantations to date • Rationalization of MIS and State Government-owned forestry assets is expected to continue • Total asset pool likely to be $7-8 billion • Significant international interest in these assets, and Australian investors also starting to take interest • Outcome will be institutional ownership of this sector • Future of forestry investment will be a function of timber prices relative to other ag commodities, and competitive position of Australia relative to other plantation countries
