FIM Services, the UK-based forestry and renewable energy investment manager, has launched its first institutional fund, the FIM UK Timberland Fund, with an initial target of £100m (€125m) to be raised from a number of cornerstone investors, including pension funds worldwide.
The fund is intended to give institutions the chance to invest in high-quality, well-located commercial plantations, taking advantage of current opportunities FIM has in the pipeline.
Anthony Crosbie Dawson, forestry portfolio manager at FIM, said timberland was an attractive asset for pension funds to consider because it had no correlation with equities, and served as a hedge against inflation.
“Furthermore,” he added, “forestry gives strong returns underpinned by biological growth.
“Timber prices are expected to increase globally due to rising demand in the developing world, and to constrained supply as illegal logging becomes better policed.
“Meanwhile, UK timberland is an ethical investment, as all FIM-managed forests are certified as 100% sustainable.”
The new fund will offer a combination of long-term capital growth and income, with an annual distribution of 1-2% of capital invested.
Crosbie Dawson said the fund would select high-yield assets well located for timber markets, with good infrastructure and unconstrained access.
Assets will also be selected on their potential for ‘higher and better use’ (HBU), particularly in relation to wind farms.
The fund will own the timberland – i.e. the trees plus the land on which they grow.
FIM will acquire commercial plantations within the UK, which consist primarily of Sitka spruce – the fastest-growing conifer in the UK – and with the largest number of end-uses.
Plantations will be located mainly in Scotland and Wales, the wettest parts of the UK, where the trees grow the quickest.
Trees are harvested when they are between 30 and 50 years old, giving the owner flexibility in the timing of harvesting and the ability to secure the optimum timber price.
No UK corporation tax is payable on the sale of the timber, and there is no capital gains tax on the increase in value of the timber.
FIM, which has more than £500m under management, also runs two funds for retail investors – FIM Forest Fund I and FIM Sustainable Timber and Energy – with £63m and £99m, respectively, under management.
The company also manages several funds investing in onshore wind farms.
Crosbie Dawson said that although a substantial portion of the fund’s assets would be invested in Scotland, it was unlikely to be affected by a potential vote in favour of Scottish independence.
“The regulator – Forestry Commission Scotland – is already an independent entity, so there should be no regulatory changes,” he said.
“The tax treatment might change, but the forestry sector is an economic success story in Scotland, employing 40,000 people in rural areas, so we are of the opinion politicians will not want to implement any policies that might have a negative effect.”
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