Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
‘Everyone wins’ in big funds’ three-way forestry split
UniSuper, the UK’s Pension Protection Funds (PPF) and APG Asset Management (acting on behalf of Dutch pension fund APB) have acquired forest management company Forico and a 170,000 hectare plantation forestry estate from natural capital manager New Forests. Each investor will own 33 per cent of the assets, with New Forests retained to manage them.
“We’re delighted to be investing in an asset of this scale and quality,” said Sandra Lee, UniSuper head of private markets. “This adds further momentum to our growing private markets and forestry portfolios, as we continue to be on the lookout for quality investments that help our members grow their retirement savings over the long term.
“Not only is forestry a portfolio diversifier, but it also supports the global transition towards decarbonisation through carbon storage as well as substitution to sustainable timber material. We look forward to working closely with New Forests and our co-investors as we further develop this asset.”
The forestry estate is the largest freehold land estate in Tasmania and a “key contributor” to the supply of sustainable hardware domestically and abroad. It also includes two wood processing mills, a seedling nursery, a fibre technology laboratory and has port access. New Forests is also looking at ways to add value and harness the growth of “the circular bioeconomy, carbon projects, natural capital and biodiversity markets”.
“Forestry is an important asset class for the PPF and this direct investment further underpins our commitment to investing responsibly,” said Alex Leonard, PPF head of infrastructure, timberland and farmland. “Our focus on using our funds in these longer term productive investments, in both UK and global markets, is important for sustainable growth and productivity.
“We are particularly attracted to the strong growth prospects for hardwood fibre, and Forico’s position at the forefront of advances in silviculture, the circular bioeconomy and natural capital. Adding this high quality, well-managed asset to our existing timberland portfolio benefits those who rely on us through strong investment returns while delivering tangible, long-term environmental benefits. Everyone wins.”
