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New Forests forest funds presentation.

New Forests forest funds presentation.

Published in Economy & Finance
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  • 1. New Forests Investment Strategies Timber Plus & Eco Products Presentation at “Boosting Investments in Biodiversity and Ecosystem Services,” Nyenrode University, Amsterdam November 11, 2009 David Brand Chairman and Managing Director New Forests Pty Ltd [email_address] +61 2 9406 4100
  • 2. About New Forests Slide
  • 3. Investment Strategies Slide
  • 4. Forestry Plus Model: Tarrangower, New South Wales, Australia
    • Cattle grazing property
    • Returns driven by long-term timber products with “upside” from carbon credits, biodiversity enhancement, water rights, and possibly renewable energy
    • Client: Cambium Global Timberland (AIM:TREE)
  • 5. Forestry Plus Commercial Model
    • Figures in AU$ Millions (Assume NPV based on 7% discount rate, hypothetical case)
    Slide --20 0 20 Original Investment -20 20 7 Renewable Energy Carbon Credits Timber Biodiversity Grant 0.5 2 1 Water Rights 10.5 Potential Net Gain
  • 6. Eco Products Strategy: Central Indiana Mitigation Bank
    • Wetlands mitigation bank regulated under U.S. Clean Water Act
    • Restoration of 100 acres of cropland to natural wetlands system
    • Permitted by U.S. Army Corps of Engineers to produce wetlands mitigation credits for sale to Indiana Department of Transportation
  • 7. New Forests REDD Project: Papua, Indonesia
    • Two sites totaling 200,000 hectares
    • 100,000 hectares under license for conversion to oil palm
    • Project is being implemented under new Indonesian national REDD legislation
    • Expect 22 million tonnes of carbon credits over 15 years
  • 8. New Forests Biobank Project: Malua Biobank
    • Voluntary endangered species bank located in Sabah, Malaysia
    • Critical habitat for Orangutan, Rhino, Elephant, Sun Bear, Clouded Leopard and many other species
    • Up to $10 million investment in rehabilitation from logging
    • Biodiversity Conservation Certificates = 100 sq
  • 9. Eco Products Commercial Model
    • Create “eco products” from ecosystem services – e.g. carbon credits, nutrient trading, biodiversity conservation certificates, mitigation banking credits
    • Embed conservation actions into development or production activities to achieve no net loss
  • 10. New Forests’ Investment Strategies
    • Timberland investment model diverging into multiple strategies
    • Original aim of providing “pure” exposure to timber price volatility is being replaced by a total return emphasis
    • Over-investment in U.S. timberland has been supported by declining cap rates and real estate price appreciation—these factors are now breaking down
    • Main opportunities for sound risk-adjusted returns will be outside U.S. and from exposure to emerging eco products markets
  • 11. Eco Products Driving the Future
    • Kyoto Protocol largely ignored role of forests in carbon markets
    • Regional and voluntary markets made progress on resolving issues and now forest carbon will be the next major extension of the global carbon market
    • Mitigation banking in the U.S. now relatively mature
    • Agribusiness under severe pressure to reduce or compensate for ecosystem impacts—beef, soy, palm oil are key industries to watch
    • Market-based solutions now also driving water quantity and water quality policy
  • 12. Where to Invest for the Future? Slide Return (real IRR) Size of asset class Return range US Carbon REDD and Biobanking United States Timberland Australia-New Zealand Timberland Latin American Timberland Asian Timberland Mitigation Banking 10% 20% 30% 40% 50% Australia New Zealand Forest Fund Tropical Forest Fund Eco-Products Fund
  • 13. Evolution of Forestry Asset Class Returns Slide Return (real IRR) 5% 10% 15% 20% - 5% 1980 to late 90’s Late 90’s to 2008 US Timberland today -10% Emerging Timberland markets Timberland Timberland HBU CAP Rate Timberland CAP Rate / Real Estate AUS & NZ Asia Timberland Timber Plus (Australia) Eco Product markets Net Return Carbon Forest Carbon Mitigation Banking REDD New Forests Strategy Other Latin America 30%
  • 14. Investment Models for a Changing World
    • Global timber production shifting to southern hemisphere and tropical regions, away from U.S.
    • Asia leading demand growth
    • Rise of REDD, biobanking, and other conservation finance could exceed timber asset value
    • Expectation that REDD could be 20% of the global carbon market by 2030, with 5 billion tonnes per annum in reductions—potentially a $100 billion per annum market with an underlying asset value of $1 trillion
    • Note that all institutional and private equity investment in forestry to date has been $40 billion
    • Investment allocation will need to reflect these realities
  • 15. Conclusions
    • Past performance of timberland asset class will not be a guide to the future
    • Timber markets will restructure towards high productivity plantations located in southern hemisphere and tropics
    • Emerging market timberland and emerging market eco-products will provide main opportunities for capital deployment, diversification for existing timberland investors, and a new round of cap rate compression benefits
  • 16.