ESG

Exclusive: Investment In Regenerative Agriculture And Forestry Rising – SLM Partners

Amanda Cheesley, Deputy Editor, 19 August 2022

articleimage

As inflation soars and geopolitical tensions rise, Paul McMahon, a co-founder and managing partner of SLM Partners, an asset manager, highlights the benefits of investing in regenerative agriculture and forestry.

With investors increasingly worried about equity markets and looking for investments which have a positive environmental impact, there has been much higher investor interest in regenerative agriculture and forestry recently, Paul McMahon from SLM Partners told Wealthbriefing.

Speaking exclusively to our publication, McMahon said the financial returns of these asset classes are good: “They are a great inflation hedge in particular.” 

The firm, which manages funds in Australia, America and Europe, focuses on regenerative agriculture and forestry practices which offer attractive risk-returns, increase climate resiliency and deliver positive impacts for nature.

This news service is covering agriculture, forestry, food production and related businesses when surging food prices have made food a hot investment topic.

Explaining why they are seeing increasing investor interest in sustainable agriculture and forestry, McMahon said: “Higher commodity prices in the last 18 months, be it beef prices in Australia, corn prices in the US or timber prices in Ireland, have been very strong in the past 12 to 18 months, which has fed directly through to the financial performance of our strategies.”

“With people increasingly worried about equity markets, they are looking at these real assets,” he added. “Another factor is that more and more investors are genuinely concerned about investments which have a positive environmental impact. Forestry and regenerative agriculture have the capability to not only reduce greenhouse gas emissions but to store carbon so they can play a very important part in meeting climate targets,” he said.

“Rising inflation and the war in Ukraine has also caused an increase in the price of food markets, especially cereals, and forestry products,” he added.

Meanwhile, fertilizer prices tripled which had a terrible impact on conventional farmers but little impact on the organic farmers that we work with, he explained. “It’s been a good time to be an organic farmer,” he stressed.

Nevertheless, commodity markets are cyclical and the high prices will come down, he said. We have seen a slight softening of timber prices recently but in the medium to long-term, the outlook is positive, whether it be for timber in Ireland or nuts in Portugal and Spain, he added.

“Land prices have also increased in the past two to three years, and even faster with inflation, so these asset classes are a good inflation hedge for investors,” he said.

SLM Partners main investors include European and North American pension funds and insurance companies, large institutional investors and family offices.

With over $400 million in assets under management, the group has four main investment strategies across the world.

Australia
“In Australia, we manage a fund that has acquired 450,000 hectares of land for grass-fed beef cattle production which has been going well,” McMahon said. It has implemented planned grazing to regenerate grasslands and improve animal welfare.

“Land prices have risen strongly in the past couple of years in Australia for all types of land,” he said. “The record high beef prices have had a particularly positive impact on the grazing land which we own. It’s been a very positive couple of years for Australian agriculture,” he said.

Ireland
“In Ireland, the SLM Silva Fund has acquired 1,600 hectares of mixed conifer and broadleaved forest properties and that fund is doing very well,” he stressed. “It’s outperforming our original targets and delivering good returns.” 

It is an institutional European forestry portfolio scaling up “close to nature” forestry, also known as continuous cover forestry.

The firm said that the €30 million ($32 million) fund has begun to implement CCF on over 60 per cent of its properties and it plans to cover the remainder over the next five years.

The strategy can improve biodiversity, carbon sequestration and resilience to climate change, while delivering stronger cash yield. Over the course of its tenure, the firm said that the fund has scored above-target, double digit returns – demonstrating that impact strategies can outperform.

US
“In the US, we manage separate accounts that are helping to scale up organic certified cropland for the production of grains,” McMahon said. “We partner with local farmers, acquire land and make this land available through long-term flexible leases,” he added. “We have invested quite a lot in the mid-West recently.” 

The firm believes that well-managed organic farmers support more biodiversity, have healthier soils, store more soil carbon and support higher farmer incomes.

Europe    
The firm’s new SLM Silva Europe Fund, which invests in regenerative tree crops from forests to orchards across Europe, has also completed its first investment in a 300-hectare property in Murcia, Spain that will grow organic almonds, pistachios and olives, after it had its first close last December.

“There is strong demand for nuts in Europe, especially organic, and there are opportunities for Spain and Portugal to boost production,” he said.

“We think the fundamental demand for timber is there in Europe,” McMahon added. “The Ukraine war has also boosted prices due to a reduction in supply of timber from Russia.” 

“On the supply side, there are a lot of small and fragmented forests in the private sector in Europe which are undermanaged and there is a real need to aggregate and better manage them which creates opportunities to invest,” he explained.

The fund acquires or leases land, introduces ecological and organic management practices, and forges relationships with local operators who specialize in ecological management practices and wish to expand.

The firm's objective is to develop a “Climate Positive” portfolio of assets that will deliver Net Zero targets, while having measurable impacts on biodiversity and soil health. The target fund size is €250 million.

Wrapping up, McMahon highlighted the benefits of the EU’s Sustainable Financial Disclosure Regulation. “We only invest in farming and forestry systems that have positive environmental impact. The plan is for our European fund, which is a key focus for us, to come under article 9 of the regulation,” he said. “We were doing it before so it's great to see more regulation coming in to prevent greenwashing.”

Register for WealthBriefing today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes