While commercial forestry is proving a well-travelled path for institutional investors attracted by financial and sustainability benefits, high net worth individuals are increasingly turning their focus to these climate friendly investments to sit alongside the attractive tax position for investment into UK Forestry.
Having been committed to the sector for more than 10 years, Par Equity, the specialist forestry investor, has reported unprecedented high net worth demand for its third and newly-launched Forestry Fund ‘Par Forestry III LP’. Nearly £5 million – more than double expected – was raised initially with two further rounds planned this year. The fund plans to raise up to £10m per year to fund investments in existing forests and new planting.
Forestry investment has long benefited from favourable tax treatment but potentially significant financial return from an environmentally-friendly activity is proving to be an increasingly attractive combination.
Par Forestry III LP requires a minimum investment of £50,000 and is targeting an IRR consistent with the returns produced for the UK Forestry sector, with an expectation of improving such returns through natural capital opportunities, including generation of carbon units from woodland and peatland and other land uses. Par’s previous funds are now closed for investment.
Paul Atkinson, Partner in charge of forestry investments at Par Equity said: “In the light of the recent COP26 climate conference it is not surprising there is growing interest in investing in the forestry sector, since it delivers environmentally friendly returns in a sustainable way. It is notable that individual investors are turning to these opportunities in view of the proven financial returns now being coupled with investing in an asset that is playing its part in addressing climate change.”
Tom Croy, investment manager for the fund, said: “We have been delighted by investor interest to date and we are looking forward to our second close which finalises on the April 29, 2022. People understand that investing in a natural product such as timber should be done over a long-time frame. However, the potential to generate some earlier return is built into the fund mandate.”
The fund will invest in commercial forestry in Scotland, the North and Wales, with around 50% used to acquire and stock new sites. Par also expects an upside potential to sequester over 1m tonnes of CO2 over the 20-year life of the fund.
Par is working with its long-time partner, Scottish Woodlands, which has planted more than 25% of all new woodland in the UK over the past year. Scottish Woodlands will seek out potential acquisition sites, provide due diligence prior to purchase, as well as manage the woodlands on behalf of the fund.
Investments in forestry benefit from favourable tax treatment. They are exempt from inheritance tax (IHT) after an initial holding period of two years and capital gains tax (CGT) does not apply on growth in the value of the timber, the sale of which is income tax free.