Primary sector asset manager MyFarm is back on the hustings for investors in a new carbon and forestry fund after an unexpected opportunity came up for its predecessor vehicle to cash out at a healthy return for investors.
The asset manager’s CQuest limited partnership sold four forests across roughly 1,400 hectares to the Stafford Carbon Offset Opportunity Fund – a British entity managing money for three local authority pension funds.
The original investors in the MyFarm carbon and forestry vehicle reaped a return of $1.50 for every dollar they invested four years ago, at an internal rate of return of 16%. The units last traded on the Syndex Markets platform on Feb 1 at $1.15 each.
“It was never the intention to sell – it was to buy and develop the forests,” said MyFarm chief executive Andrew Watters. “But when the opportunity came, we said why not.”
MyFarm is seeking between $7 million and $13.6 million from eligible wholesale investors for a new carbon and forestry vehicle – CQuest Forestry Fund – to buy and plant up to 1,000 hectares this year, with a view to expanding the portfolio to 2,000 over the next three years.
Watters said the outlook for carbon remains robust, albeit with a little less certainty than two or three years ago.
“There’s some politics at play, but the juggernaut of change and the numbers are there,” Watters said.
MyFarm expects the forestry fund will find favourable buying conditions, targeting smaller, unproductive sheep and beef farms at a reasonable price, he said.
The new forestry partnership is targeting an annual internal rate of return of 9%-to-12%, generating income from sequestering carbon between the fourth and 16th years, then harvesting the trees once they're 25-to-35 years old for a significant capital inflow.
Finding a floor
The upper end of those targeted returns is based on the government’s auction floor price for the emissions trading scheme, starting at $65 per NZ unit this year, rising to $82 in 2029. Carbon units traded at $57 on the emsTradepoint platform yesterday.
The NZX-listed Carbon Fund, which invests in New Zealand and Australian carbon credits, fell 7.7% to $1.57 in the March quarter.
The 6 million limit on units to be sold at this year’s quarterly ETS auctions is expected to meet 30% of emitters’ estimated demand, meaning the shortfall will need to come from forest owners or existing reserves. No units were sold at the March auction.
Watters said he expects some investors in the original CQuest fund will participate in the latest offering and anticipates reasonable demand for what’s a natural hedge against higher carbon prices impacting companies in an investor’s portfolio.
“Investors are more cautious in their investment decisions than they were three or four years ago,” he said.
The offering is open until April 30, with a minimum investment of $50,000.
MyFarm has been managing primary sector assets for 34 years, with about $600 million in total syndicated assets and 62 properties under management.
While limited to eligible investors – which the manager checks – MyFarm publishes quarterly updates and fact sheets proactively.
Watters said MyFarm attracts some exceptionally experienced investors who are well-placed to ask probing questions of the manager.
“People very much think about how it sits in their portfolio,” he said. “We end up having conversations with investors that exactly match the risk and return discussion.”
Reporting by Paul McBeth. Image from Andrew Spencer on Unsplash.
