Finnish forest competence for investors
24/03/2011
Dasos Capital is the first investment advisor in Europe for funds invested in forest assets. It advises institutional investors as well as a private equity fund with a portfolio of sustainable timberland investments, some in developing countries.
Dasos Capital Oy is a Finnish company that provides advice to investors about the management and development of forest assets in Europe and developing economies. Its main clients are institutional investors.
“When properly managed, timberland is a renewable natural resource that holds its long-term value and generates returns. It’s very suitable for investors who want to diversify their portfolios,” says Olli Haltia, senior partner and CEO.
Dasos Capital is investment adviser to Dasos Timberland Fund I, which was launched in 2009. Among the Fund’s first investors were the European Investment Bank and Ilmarinen, a Finnish pension insurance company. The number of investors has subsequently grown. Timberland has proved especially attractive to international investment institutions.
The Fund’s will be closed in the spring. It has already raised over 100 million euros and will probably grow further towards the final closing of the Fund.
The Fund has so far made investments in five sites in Malaysia, Latvia, Romania, Estonia and Finland. The combined area of timber land is nearly 37 000 hectares. New sites have been studied in Indonesia, Uruguay, Estonia, Tanzania and Ecuador.
Backed by solid forest competence
The six-member senior team of Dasos has long experience of sustainable forestry in northern and tropical areas. The team supplements its skills with international networks that help it assess investment targets, Olli Haltia says.
“Everything depends on understanding the value drivers of forestland, from wood usage to natural values. The world has many plantation forests but limited availability of sites offering value-added to investors.
“Finding investment opportunities hinges on expertise and comprehensive networks. Our work is founded on experience in the field and a grasp of what our customers – the investors – need.”
He says that Dasos is merchandising a very well established know-how resource in a new way: “We are offering a new service to a new international segment of customers.”
Sustainable projects only
Dasos Timberland Fund I (DTFI) is seeking to invest half in Europe and half in sites in developing markets. Even timberland in developing markets often supplies wood to Nordic or other European companies.
“In developing economies in the tropical zone, DTFI invests in plantation forests only. We can also invest in the production ecosystem services, such as carbon sequestration and biodiversity, of natural sub-tropical or tropical forests but wood is not harvested from those areas.”
In Malaysia DTFI has invested in a plantation forest that produces timber for furniture production.
“A planted tree directly replaces wood felled from natural tropical forests so, if it is sustainably produced, plantation wood helps to prevent deforestation.”
Apart from environmental matters, social responsibility is extremely important in forest management, Haltia points out.
“All forests have to be certifiable, but social responsibility also counts. Creating employment and income opportunities for local inhabitants are matters that we consider, because they are a precondition for economically sustainable operations.”
Yield target of ten percent
DTFI will operate up to 15 years, a period which Haltia believes is long enough to achieve profitability in its investments. Forest areas have different yield and risk profiles. The expected return of the Fund is at least 10 percent.
“In Europe the return from timberland is typically below 10 percent. On the other hand the risks are low. In developing economies the return can exceed 10 percent but the risks are greater.”
When investing in timberland in developing economies, the greatest risks are associated with environmental and social questions. Political instability and exchange rate fluctuations also have to be factored in.
“Investors like Finnfund and the European Investment Bank are specialists in avoiding political risk so their participation is important for us.”
Finnfund involvement as an investor
Finnfund is an investor in DTFI. Associate director Hanna Skelly points out that Finnfund has solid experience of responsible investment in the developing countries and developing markets that are the main operating areas of DTFI.
“Finnfund’s participation together with the EIB can reduce the perceived social and environmental investment risks for investors. This will strengthen DTFI’s operations specifically in developing countries,” Skelly points out.
DTFI’s investment targets in developing countries are mainly in poor rural and remote regions, as most timberland investments are. They bring jobs and economic activity to the area, leading to an improvement in general living standards.
“DTFI’s timberland is certified and will be managed according to principles of sustainable development. Certification also has a wider influence, because a much greater land area that the plantations themselves become subject to protection and control,” she says.
Forests needs “billions of investment”
Investment in timberland began in the United States. Now interest is spreading to other areas, Haltia says.
“I believe that, in 20 years’ time, an ever increasing number of investors will be looking at timberland. This will also provide finance for sustainable forest management.”
He points to the enormous challenges faced. Natural tropical forests are disappearing at an alarming rate but, at the same time, demand for wood is growing, among other things because of its increasing use as an energy source.
“We calculate that the world will need at least 50 million hectares of new plantation forest in the next twenty years. Forests will swallow an investment of tens of billions of euros over the next two decades, probably over 100 billion euros.
At the same time, the world will need to prevent environmental change and protect natural diversity. Deforestation has to be stopped and a market created for the carbon sequestration that forests perform. It is a great opportunity for Finnish forest expertise.”
For more information please contact Ms Hanna Skelly, tel. +358 3484 3326 firstname.lastname@finnfund.fi
