New Forests has held a $200 million first close on its open-end African Forestry Impact Platform, its first investment fund dedicated to Africa.
The capital has been secured from the fund’s three cornerstone investors: British International Investment (formerly known as CDC Group), the UK’s development finance institution; Norfund, the Norwegian government’s investment fund for developing countries; and Finnfund, the Finnish Fund for Industrial Cooperation.
New Forests did not disclose the exact amounts of equity committed by its three investors, but the firm’s head of emerging markets Geoffrey Seeto confirmed to affiliate title Agri Investor that “the majority” of the capital had been provided by BII, with the balance made up by Norfund and Finnfund.
New Forests launched the fund in November 2021, which has a fundraising target of up to $500 million. Seeto reconfirmed this target and said the firm hoped to reach that sum in “two to three years”.
“It’s an open-ended fund, so if there is appetite for the assets, we may be able to raise more than that [because] we have a very ambitious investment programme,” he said. “There is certainly a lot of interest in the space because of climate change and the ability to access carbon and climate change mitigation.”
Seeto said the fund has been designed as a perpetual capital vehicle to try to de-risk investments in African forestry before securing non-DFI investors down the track.
“At some stage when we have these assets up and running with established markets, with less risk around growth and processing, we can recycle investors to bring in pension funds or insurance companies that want less risky assets,” he said.
“When that happens, we can take the DFIs out by giving them back their capital plus a return, so they can take that money and do more good in other parts of Africa or the world, leaving us with a long-term base of institutional shareholders.”
New Forests has made its first investment from the fund, acquiring Green Resources, a forestry business spanning Mozambique, Tanzania and Uganda with 38,000ha of plantation. The deal is subject to regulatory approval in Tanzania and is expected to be completed by December 2022.
“That will form the core of our entry into Africa and, using that core vehicle, we can then start to acquire other [businesses] as bolt-ons to give us synergies and economies of scale,” Seeto said. “That will make things more efficient in terms of processing and growing timber, allowing us to develop markets for higher value-added products. That allows us to generate a return, but also provide a return to the stakeholders, the local communities.”
The firm has established an office in Nairobi, Kenya, led by senior director Paul Ohaga, and has plans to expand the team there to nine people. “Wherever we have assets, we want to co-locate our teams because we can then manage our assets better in line with our active management approach,” Seeto said.
The African Forestry Impact Platform sees New Forests enter its fourth market for forestry, building on existing investments in Australia and New Zealand, the US, and emerging markets in Southeast Asia. The firm also recently launched New Agriculture, a new business division focused on farmland investments.
In a statement, Clarisa De Franco, managing director and head of private equity funds at BII, said: “BII is proud to be part of this partnership to launch a permanent capital vehicle that will increase funding for nature-based solutions, increase the supply of sustainable wood [and] restore natural capital, while also boosting jobs within rural communities.
“Addressing the climate emergency in Africa must include gender-smart actions, and we are thrilled that the fund has committed to invest at least 30 percent of the value of its portfolio in 2X eligible businesses. This will promote inclusive economic opportunities, increase productivity and improve livelihoods across Sub-Saharan Africa.”
Partnerships for Forests – a programme funded by the UK Foreign, Commonwealth and Development Office – will provide technical assistance to AFIP, including helping it to identify and develop business models around target investments that will provide returns to investors, while delivering social and environmental value to smallholders and other local stakeholders.