Expanding horizons: Nest's venture into the realm of timber investments
In a significant move towards sustainable investing, Nest, a UK master trust with approximately £42bn in assets under management, has invested £550m in timberland. This marks Nest's first investment in natural capital.
The timber investment, which spans over three years, is a strategic decision aimed at allocating 2% of Nest's total assets under management (AUM) to the timber asset class. This move is expected to grow significantly, potentially reaching £2bn given the expected growth.
Biodiversity management is a crucial aspect of Nest's timber investment strategy. A healthy forest requires a focus on biodiversity, and Nest is committed to maintaining this balance. The carbon sequestration aspect of timber investment is also of interest to Nest, as they are on their own net zero journey.
The stability and lack of correlation with other asset classes are the main appeals for Nest's timber investment. According to Jessica Menelon, who has played a significant role in the procurement processes of private credit and private equity, and also in the recent timberland tender, these factors make timberland an attractive investment option.
The timber investment strategy is open-ended, allowing Nest to hold onto properties indefinitely. This is particularly beneficial as timberland's value appreciates over time, especially when properly maintained, and also provides a steady income stream from the sale of timber.
Nest has selected PvB Pernet von Ballmoos AG as the timber manager for this investment. The fund mainly includes Swiss timber assets, as indicated by the Swiss InvestInvent Timber Real Estate Fund. The manager was chosen for its focus on shorter distribution contracts, allowing timber producers to renegotiate prices in line with inflation.
Campbell Global was selected from among 12 other managers due to its larger size and strong pipeline. The due diligence process included visits to timber developments in the Southern US and the West Coast.
The timber investments will be focused on producing timber properties in large commercial markets such as the US, Australia, New Zealand, South America, and some exposure to Europe. It's worth noting that unlike many crops, if there is lower demand for timber, the trees can be left to grow without losing value, and can be cut when demand increases again.
Nest is experiencing an unusually strong inflow of assets every month, exceeding £500m. The decision to invest in natural capital was made as early as 2019, but it took five more years for the investment to be confirmed.
Stability, returns, and environmental considerations have all contributed to Nest's decision to invest in timberland. With this move, Nest aims to allocate 2% of its total assets under management (AUM) to the timber asset class, potentially reaching £2bn in the future. This investment is now available to more than 90% of Nest members who are part of the default growth fund.
