Latin America timber fund targets $300m

Earth Capital Partners has launched its Forestry Fund I targeting 12% IRRs through the acquisition of established plantations and agricultural land ripe for planting in Brazil and other Latin America countries.

Earth Capital Partners is betting on rising global demand for paper-related products, launching a $300 million forestry fund targeting timber plantations in Brazil and other Latin America countries.

The London-based fund manager has just started marketing the 10-year private equity-style fund, which will target established plantations as well as “degraded” agricultural land that could be planted with trees.

ECP’s head of sustainable agriculture and forestry, Bosworth Monck, said the firm – which has just held a first close on its debut fund, the ECP Renewable Energy Fund I – was focused primarily on Brazil, and other Latin American countries, such as Colombia, owing to the low cost of production. And with predictions that 40 million hectares (equivalent to almost 100 million acres) of new plantations required to meet global demand for fibre, biomass and solid wood over the next decade, Monck said it “made sense to take advantage of that gap between supply and demand”.

The fund is expected to invest in up to eight investments, acquiring a mix of assets from established plantations, which generate an annual dividend yield, to land where trees – such as eucalyptus, which can grow to maturity ready for cutting in seven years – can be planted.

Timberland has a low correlation to other asset classes but with a positive correlation to inflation. Combine that with the fact valuations have held up relatively well in Latin America over the past 24 months and we are seeing increasing investor interest.

Bosworth Monck

Monck said ECP would generally exit the deals selling established plantations, or plantations created by ECP, to new operators. However, the firm could also liquidate the timberland and sell the raw land for other purposes.

The fund, which is targeting 12 percent net IRRs and is expected to hold a first close later this year and a final close in 2011, was attracting attention from institutional investors in the US and Europe, not only because it was targeting real assets but also because of its focus on Brazil and Latin America.

Monck, previously managing director at EMP Global investing the $1 billion AIG-GE Capital Latin American Infrastructure private equity fund as well as chief executive officer of financial advisory group IBIS Asset Management, said the asset class had some “very compelling attributes.

“Timberland has a low correlation to other asset classes but with a positive correlation to inflation. Combine that with the fact valuations have held up relatively well in Latin America over the past 24 months and we are seeing increasing investor interest.”

The ECP Renewable Energy Fund I invests in solar and biomass-to-energy infrastructure in Europe, with the ability to invest in deals in the Middle East and North Africa.