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New Forests forest funds presentation.

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    1. 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. 2. About New Forests Slide
    3. 3. Investment Strategies Slide
    4. 4. Forestry Plus Model: Tarrangower, New South Wales, Australia <ul><li>Cattle grazing property </li></ul><ul><li>Returns driven by long-term timber products with “upside” from carbon credits, biodiversity enhancement, water rights, and possibly renewable energy </li></ul><ul><li>Client: Cambium Global Timberland (AIM:TREE) </li></ul>Slide
    5. 5. Forestry Plus Commercial Model <ul><li>Figures in AU$ Millions (Assume NPV based on 7% discount rate, hypothetical case) </li></ul>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. 6. Eco Products Strategy: Central Indiana Mitigation Bank <ul><li>Wetlands mitigation bank regulated under U.S. Clean Water Act </li></ul><ul><li>Restoration of 100 acres of cropland to natural wetlands system </li></ul><ul><li>Permitted by U.S. Army Corps of Engineers to produce wetlands mitigation credits for sale to Indiana Department of Transportation </li></ul>Slide
    7. 7. New Forests REDD Project: Papua, Indonesia <ul><li>Two sites totaling 200,000 hectares </li></ul><ul><li>100,000 hectares under license for conversion to oil palm </li></ul><ul><li>Project is being implemented under new Indonesian national REDD legislation </li></ul><ul><li>Expect 22 million tonnes of carbon credits over 15 years </li></ul>Slide
    8. 8. New Forests Biobank Project: Malua Biobank <ul><li>Voluntary endangered species bank located in Sabah, Malaysia </li></ul><ul><li>Critical habitat for Orangutan, Rhino, Elephant, Sun Bear, Clouded Leopard and many other species </li></ul><ul><li>Up to $10 million investment in rehabilitation from logging </li></ul><ul><li>Biodiversity Conservation Certificates = 100 sq </li></ul>Slide
    9. 9. Eco Products Commercial Model <ul><li>Create “eco products” from ecosystem services – e.g. carbon credits, nutrient trading, biodiversity conservation certificates, mitigation banking credits </li></ul><ul><li>Embed conservation actions into development or production activities to achieve no net loss </li></ul>Slide
    10. 10. New Forests’ Investment Strategies <ul><li>Timberland investment model diverging into multiple strategies </li></ul><ul><li>Original aim of providing “pure” exposure to timber price volatility is being replaced by a total return emphasis </li></ul><ul><li>Over-investment in U.S. timberland has been supported by declining cap rates and real estate price appreciation—these factors are now breaking down </li></ul><ul><li>Main opportunities for sound risk-adjusted returns will be outside U.S. and from exposure to emerging eco products markets </li></ul>Slide
    11. 11. Eco Products Driving the Future <ul><li>Kyoto Protocol largely ignored role of forests in carbon markets </li></ul><ul><li>Regional and voluntary markets made progress on resolving issues and now forest carbon will be the next major extension of the global carbon market </li></ul><ul><li>Mitigation banking in the U.S. now relatively mature </li></ul><ul><li>Agribusiness under severe pressure to reduce or compensate for ecosystem impacts—beef, soy, palm oil are key industries to watch </li></ul><ul><li>Market-based solutions now also driving water quantity and water quality policy </li></ul>Slide
    12. 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. 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. 14. Investment Models for a Changing World <ul><li>Global timber production shifting to southern hemisphere and tropical regions, away from U.S. </li></ul><ul><li>Asia leading demand growth </li></ul><ul><li>Rise of REDD, biobanking, and other conservation finance could exceed timber asset value </li></ul><ul><li>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 </li></ul><ul><li>Note that all institutional and private equity investment in forestry to date has been $40 billion </li></ul><ul><li>Investment allocation will need to reflect these realities </li></ul>Slide
    15. 15. Conclusions <ul><li>Past performance of timberland asset class will not be a guide to the future </li></ul><ul><li>Timber markets will restructure towards high productivity plantations located in southern hemisphere and tropics </li></ul><ul><li>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 </li></ul>Slide
    16. 16.