WELCOME TO GRESHAM HOUSE FORESTRY

AN INVESTMENT STRATEGY OF GRESHAM HOUSE

About Us

Forestry is part of the Gresham House real assets division and the team has over 180 years of combined experience in forestry investing and asset management.

We believe that forestry investment offers attractive long-term returns through a combination of our forestry asset management expertise with the robust underlying characteristics of the asset class.

Gresham House Forestry has over £280m of assets under management (as at 31 December 2017) on behalf of institutions, endowments, family offices and private investors.

Why Invest in Forestry?

Weston Green Consulting 2015 The Future of Forestry – The Local Impact of Global trends Presentation

Forestry investing is not new – many people think of David Swensen at the Yale Endowment when the topic comes up. Others will go further back to Otto von Bismarck and his banker Gerson von Bleichroder in 19th century Germany.

The characteristics these influential predecessors recognised in forestry as an alternative asset class are the same characteristics that still exist today – a real asset that grows organically, produces income, gives inflation protection and does not correlate with financial assets.

Biological Growth

Regardless of what GDP or the stock or bond markets are doing, trees will grow and the volume of timber that is standing in the forest available for sale will increase every year.

Inflation Hedge

Forests are real assets and historically pricing correlates positively with inflation. For those worried about deflation, the available history suggests that, as with other real assets, they have outperformed financial investments in deflationary times.

 

What are the benefits of investing in Forestry

Tax Benefits

There are several tax benefits associated with investing in Forestry:

  • Tax free income – Proceeds from UK timber sales are tax-free whether the asset is held personally or by a company
  • Tax free capital gains – Increase in value of standing timber is exempt from capital gains tax (excluding increase in underlying land values)
  • Capital gains roll-over – Proceeds from the sale of capital assets can be reinvested in UK commercial forestry land to defer the capital gains
  • No Inheritance tax – Qualifies for business property relief after two years of ownership

Income

Forests produce healthy but lumpy and irregular cash flows, largely from timber sales. A diversified portfolio of mixed ages of trees can produce the income profile to smooth the peaks and troughs from individual forests.

Environmental credentials

Trees sequester carbon – the faster they grow, the more carbon they absorb. Planting trees is considered to be a viable solution to reducing the effects of climate change. The end timber product is substantially less energy intensive to produce than other building materials or energy sources.

Growing demand for timber

Growth in emerging markets, increasing use in the construction sector globally, and increasing biomass power usage have all contributed to a significant upwards trend in demand for timber over the last 50 years. That demand growth rate is forecast to accelerate over the coming years.

The Opportunity

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There is growing interest globally in the opportunity that investing in forestry can provide. These include:

  • Forestry offers better returns than the low rates associated with certain other forms of investing
    Forcing a search for alternative sources of income
  • Forestry is a real asset
    Defensive in periods of inflation and deflation
  • Uncorrelated with major asset classes with lower volatility
    Providing portfolio diversification
  • ESG credentials
    Carbon capture, sustainable industry, improves air quality, flood defence, habitat creation
  • Growing demand
    Emerging market growth, Biomass power usage, increased usage in construction and
    packaging
  • Established asset class
    Top 30 US TIMOs manage $57bn of timber assets (source: www.realassets.ipe.com), US Endowment allocation to natural resources: Yale 8.5%, Harvard 11%, Stanford 10%

The Investment Opportunity

Source: MSCI, JP Morgan, Forestry Commission IPD UK Annual Property & Forestry Indices, FTSE All Share Index, FTSE UK Gilts Index 5-15yrs. Total Return. to 31 Dec 2016. *IPD UK Forestry Index created in 1992 – 24 years ago.

Forestry offers Unique Return Drivers…

  • Organic growth
    Our tree crops typically grow in volume by 4.0-5.0% per annum*
  • Value growth
    Timber increases in value with age
  • Impact of timber prices
    Generates tax free income or value ‘stored on the stump’
  • Impact of land values
    Positive supply and demand dynamics
  • Higher and Better Use (HBU)
    Enhancing returns from alternative land use opportunities; wind farms, hydro-electric power, biomass, property development, telecom infrastructure, mineral extraction, sporting rights

*Based on Gresham House Forestry’s calculations, which assume Sitka spruce, yield class 18

Investment focus and selection criteria

Our investment focus and selection criteria:

  • Diverse portfolio of high quality forests in the UK
  • Investment focus will be in Scotland and other areas of the UK where Sitka spruce are
    particularly high-yielding
  • A spread of ages that includes both first and second rotations
  • Mix of established forests and new planting

Tax Benefits

  • Tax free income
    Proceeds from UK timber sales are tax-free whether the asset is held personally or by a company
  • Tax free capital gains
    Increase in value of standing timber is exempt from capital gains tax (excluding increase in underlying land values)
  • Capital gains roll-over
    Proceeds from the sale of capital assets can be reinvested in UK commercial forestry land to defer the capital gains
  • No Inheritance tax
    Qualifies for Business Property Relief after two years of ownership

(Please note that Gresham House does not offer tax advice)

Approach

Taking Forestry from a tax driven business to one based on efficient, sustainable timber production…

Gresham House Forestry was established in 2001 to deliver a new approach to forestry investment, offering clients high level advice and management based on alignment of interest with investors and making a difference. The team looks to buy well, preferably off market and their strong operations team allows them to maximize returns from forest operations and management.

Investment Process

The focus of commercial forestry in the UK is on growing softwood conifers, in particular Sitka spruce; this main productive species is grown to be felled on a 35-40-year cycle.

All investments for clients start with an in-house sourcing and appraisal of possible assets for acquisition, which is carried out by the investment team. Investments on the open market are often sourced through selling agents; however, an extensive network of contacts in the industry have historically allowed multiple large-scale opportunities to be developed off-market. This is done through a combination of pro-active pursuit of acquisitions, owners and professional third parties indicating a desire to sell and offering the asset and direct introductions. The 180 years of combined experience amongst the team provides a wealth of industry knowledge and networks from which to source prime commercial forestry for investors.

Once identified, the investment team produce a full investment appraisal on the asset.

1) Acquisitions

  • Sourcing both on and off market transactions for clients
  • Appraising and valuing forests with technical onsite, and desktop due diligence
  • Identification and analysis of potential HBU opportunities
  • Investment Committee consideration of proposed deals
  • Purchase and support during the legal transaction.

2) Strong management of third party forestry service providers

  • Disciplined control of costs
  • Quarterly budgeting and reporting
  • Maximising biological growth and asset potential
  • Achieving the best prices for timber at harvesting
  • Alignment of interests with clients, fees commensurate with client’s returns
  • Independent third-party valuations.

3) Utilisation of Our Extensive Network

  • Breadth of relationships with on-site forestry specialists and timber buyers
  • Support and advice during any disposal process.

4) Exploration of Higher and Better Use (“HBU”) Opportunities

  • Systematic reviews to capitalise on any opportunities
  • Track record of identifying and delivering wind farm projects, small scale hydro opportunities, property developments.

5) Risk Management

  • Identify and manage physical risks
  • Insure against fire and storm damage, where appropriate
  • Management and mitigation of uninsured risks such as pests and disease
  • Building diversified portfolio of forests across age classes and geographical regions.

6) Long-Term Asset Management

  • Focusing on increasing and preserving the capital value of the asset
  • Focusing on sustainability.

Forestry Annualised Investment Performance

Calculated from financial information contained within the audited financial statements up to the end of 2016 using of a sample of mandates advised by Gresham House Forestry

Performance

  • Strong compound annual growth rates, averaging 17.4% over 10 years across client portfolios since inception (as at 31st December 2016)
  • Dedicated team of asset managers & professional foresters with over 180 years of combined experience
  • In excess of £280m assets under management on behalf of Institutions, Endowments, Family Offices and private investors

How to Invest in Forestry

1. Directly via a Managed Account
The primary objective is to assemble a portfolio on a scale which provides diversity in age and location, requiring considerable capital commitment to ensure the primary objective is achieved.

2. A collective of like-minded individuals with similar investment objectives
The capital commitment required to build a portfolio can be an impediment to individual investors. A collective of like-minded individuals with similar investment objectives can overcome this. A co- investment of this type allows each of the members to benefit from any tax allowances applicable to forestry, while also potentially retaining discretionary decision-making powers. For more detail please contact the team for the Investment Memorandum.

3. Through a Limited Partnership (LP) fund
The Gresham House Forestry Fund LP is now closed to new investment. Please contact the Forestry team to invest in Forestry via the channels described above.

Investment into Forestry can be accessed by contacting:

Jon Strickland: +44(0)7718 524 158
j.strickland@greshamhouse.com

Graham Carter: +44(0)7702 957 279
g.carter@greshamhouse.com

Trevor Blackburn: +44(0)7557 372 944
t.blackburn@greshamhouse.com

Senior Management Team

Team