Estonia’s two biggest pension fund managers – Swedbank Estonia Pension Funds (SEPF) and LHV Pension Funds Estonia (LHV) – have become anchor investors in Birdeye Timber Fund 2 (BTF2), a real estate investment fund investing in Estonian forestland.
The fund is run by Birdeye Capital, an asset manager owned and run by forestry and investment management professionals.
Sander Pullerits, manager of BTF2, said: “Investing in Estonian forestland will help to hedge against inflation risk and presumably offers a more stable return than, for instance, investments in stock markets.”
He added that the expected return would be made up mainly of biological timber growth and the increase in portfolio value as a result of its sustainable management.
Birdeye Capital’s first fund, the Birdeye Timber Fund (BTF), is roughly €7m in size and has returned around 8% since launch at end-2013.
LHV was an anchor investor in BTF, which marked its first investment in timberland.
Around 15% of its €900m of assets are invested in Estonia, while forest investments make up on average 0.5% of its fund portfolios.
Kristo Oidermaa, portfolio manager at LHV, said: “Our commitment to invest in BTF2 was driven by our previous good co-operation.
“Timberland is a suitable investment vehicle for the pension fund due to the natural growth component, inflation protection and requirement for long-term good management standards.”
Swedbank, a new investor with Birdeye Capital, said it was investing up to €10m in BTF2.
Kristjan Tamla, head of Swedbank Investment Funds, said: “SEPF sees this as a long-term investment that primarily serves as a diversifier in our globally balanced portfolios.
“The performance of timber assets is largely determined by the natural growth of forest and everyday forest management, such as cutting. We see that these components have little correlation with global equity and bond markets.”
He added: “In addition, the ownership of Estonian forestland is still quite segregated, with private individuals owning small plots. Part of the Birdeye strategy is to consolidate smaller land plots and achieve efficiencies of scale in managing larger forest areas.”
There is no fixed or formal target return for BTF2, but the performance fee is based on a 6% hurdle rate.
The fund will continue to raise capital until October 2019, with an option to extend for a further 12 months.