An impact fund that invests in Italian forests by purchasing shares in a company in line with the European Green new deal project. This is the project of Etifor, a spin-off consulting firm of the University of Veneto. The initiative replicates the American experience of the Timber Investment Management Organization (Timo). Here are the returns and an eye for liquidability.
An impact fund that invests in Italian forests by purchasing shares in a company. In line with the European Green new deal. This is the project of Etifor, a green consultancy and spin-off company of the University of Padua, created by a group of former PhD students specialized in agronomy and economics. The initiative is based on the US experience that launched the Timber Investment Management Organization (Timo), a sort of “green” SGR, focused on investments in forests.
“In Italy, there are no such experiences unlike in the rest of Europe – explains Lucio Borro, one of the founding members of Etifor – For the impact fund we have already spoken with some Italian management companies such as Etica and Sefea Impact but at the moment there is nothing formalized”. It will take at least another year to get the fund specialized in this type of investment in Italy, says Borro. It will be discussed in 2021. In the meantime, however, the monitoring of Italian forests and woods has already started “because unlike in the United States, in Europe and in Italy in particular, the land is very fragmented and it’s not possible to reach the size of a million hectares in the United States, all compact. Here there are so many pieces to put together on the national territory”.
Etifor will not be the company in which the fund will invest. In fact, the Padua spin-off is offering its advice. But the question is, where will the returns come from? “From the sale of wood – points out Borro – from the value of the land and a series of innovative collateral activities: CO2 conservation, recreational services, protection of biodiversity and other ecosystem services all certified by third parties such as Fsc, one of the world’s best-known certification bodies”.
In the document issued by Etifor, regarding the characteristics of investments in forests, we read: “The inclusion in investment portfolios offers several advantages, often unknown, such as: low levels of volatility; the effect of protection against inflation, given that the high correlation with the general trend of consumer prices protects the investor from the effects of inflation on the value of the investment; and finally, the low correlation with other asset classes that allows to reduce the risk component within the investment portfolio. This characteristic – we add – results from the very nature of this asset class: biological growth, which is the main component of return and is independent of macroeconomic and financial market conditions”.
Portfolio and Liquidity
In the portfolios of impact funds, adds Borro, “there are 2, 3 or 5% stakes in companies like the American Timo. In very rare cases we have seen shares of up to 10%”. And the returns? In the documents presented at an event in Milan during the Sri week, the example is given of 40 hectares in Trentino Alto Adige with an investment period of 10 years and an investment amount in excess of half a million euros: the products and services are wood and CO2 conservation. In addition there would be the activity of “recovery forest abandoned for 40 years” with cleaning, thinning, cutting and protection of sources.
The yield is estimated to be over 2% Irr (where Irr stands for internal rate of return that equals the present value of expected cash outflows to the present value of expected cash inflows). But watch out for liquidability: when a Thyme is closed in America, at least two years pass on average to sell all the forests in the portfolio.