The London-listed asset manager highlighted forestry as an alternative asset class that is rising in popularity.

Gresham House has announced the first close of its UK forestry fund, with £15 million ($18 million) raised in commitments and finance from university college endowment funds, family offices and private individuals.

Gresham House, which itself raised £1.25 million for the close, is targeting a £50 million final close for the Gresham House Forestry Fund in the second half of 2017. 

As its cornerstone investment, the fund has contracted to acquire five forests in the West of Scotland for around £12.1 million.

The fund’s limited partnership structure allows UK investors to benefit from the incentives associated with direct ownership of UK commercial forests. Income from timber sales is tax free; there is no capital gains tax on the increase in the value of the standing timber and no inheritance tax after two years of ownership.

Managed by Richard Davidson, formerly chief investment officer and chief European equity strategist for Morgan Stanley, the fund will target net annual returns of 10 per cent, which includes an expected annual income distribution of 2 per cent to 4 per cent from timber sales.

“Forestry as an alternative asset class is growing in popularity amongst institutional and private investors. As investors increase allocations to real assets, timber is being recognised for its compelling investment credentials: it is a physical asset that generates income, gives inflation protection, is lowly correlated to equities and bonds, and importantly, trees grow irrespective of whether financial markets are rising or falling,” said Rupert Robinson, managing director of Gresham House Asset Management.

Davidson added: “As a medium- to long-term investment, forestry is generally low risk as it is underpinned by unique return drivers: trees grow both in volume and value as they mature and a looming supply shortfall of timber in the UK will, we believe, push up timber prices. On top of that, renewable energy projects such as wind farms have provided an alternative income source. Unsurprisingly forestry’s historic returns, ESG credentials and tax incentives have piqued investors’ interest.”