Stafford’s Whiteley: ‘Crystal ball gazing’ needed to predict returns from carbon offsets

Stafford Capital has just raised $242m from three UK pension schemes for its carbon offset fund, which is targeting returns of 9-11% but hopes for 'significantly more'.

The UK local government pension schemes (LGPS) of Essex, Leicestershire and the City and County of Swansea have invested in Stafford Capital Partners Carbon Offset Fund, which has reached a first close on $242 million.

Launched in December 2022 with a $1 billion fundraising target, the Carbon Offset Opportunity Fund is classified under Article 9 of the SFDR and will look to invest in afforestation, natural forest restoration and forest management projects. Stafford CEO Angus Whiteley told New Private Markets that the product is underpinned by a commercial timberland return, which is expected to be around 5 percent. The rest of the returns effectively come from the value of carbon credits that are returned to investors.

“How have we factored that [carbon credit value] in? There is a certain amount of crystal ball gazing that goes with that,” said Whiteley. “As a result of that, we’ve taken a conservative view of what we see as the future of the carbon price. We’ve looked around at market consensus. Our feeling is that, as a product, the underpinning by commercial forestry is attractive. The potential is there for the return to be significantly above that; we are looking at 9 percent to 11 percent as the overall return. It could be significantly beyond that, we’ll just have to see how the market plays out.”

Between them, the three pensions accounted for all the capital committed so far. Essex and Leicestershire are longstanding investors in Stafford products, and Swansea is a new addition to the investor base.

Whiteley highlighted a potential for LGPS not only to sell the carbon credits they ultimately receive, but also to use them to meet decarbonisation targets. “There’s always the potential downstream for them to be using these carbon credits to retire them to meet their net-zero liabilities and targets,” he added.

Stafford now is looking to begin deployment. Whiteley said that 65 percent of the fund’s allocation will be allocated to afforestation. The majority of Stafford’s timberland allocations focus on North America, Australia and New Zealand. As part of the carbon offset strategy, the firm is looking for opportunities in Europe.

Stafford hopes to complete fundraising by the end of 2023. “We’ve got a good pipeline of opportunities on the investor side,” Whiteley said, noting that the firm is looking globally for investors.