And the first billion DKK has already been allocated to Manulife Investment Management, the world’s leading manager of timberland.
The second half of the investment of DKK 2 billion is expected to be allocated to three more managers within 2-3 years.
Christoph Junge, Head of Alternatives in Velliv, explains that the timberland investments fit well into Velliv’s investment philosophy but also contribute to the continued increased focus Velliv has on sustainability:
”Typically, timberland is not the first thing you think of when thinking about pension investments, but it is a really interesting asset class in that it is a long-term investment that fits well with pension savings. Furthermore, it allows us to invest in certified sustainable forestry that takes into account and ensures a balance between the environment, social conditions and economy over time.”
The timberland investments are expected to meet the EU taxonomy and thus count towards the 20 per cent of assets supporting the green transition that we aim to invest in by 2030. And at the same time, it is also possible to ensure good returns to customers.
”This timberland investment contributes with an attractive stable return with low risk. We expect to achieve a return of around 6-7 per cent per year after all costs. In light of the low risk of the investment, this is a very reasonable risk-adjusted return. It also emphasises that a focus on sustainability can produce competitive economic results,” Christoph Junge says, and he adds that timberland investments must also contribute to protecting the purchasing power of our customers. Historically, the development in prices on land, wood and timber have followed consumer prices.
The timberland investments help diversify and reduce the risk in Velliv's total investment portfolio. Similarly, timberland investments in North America and Oceania have been selected to ensure a low risk exposure. For example, timberland investments in those regions have the advantage that there is already an established forestry industry with the associated infrastructure and a high level of legal certainty. This is not always the case for less developed markets. In addition, identifying the currency risk of core markets is easy and low-cost, contrary to less developed markets, where this would be too expensive. And the currency risk is an important focus point in an otherwise very stable asset class such as timberland investments.
The investments mark a new direction for Velliv in accordance with the newly developed timberland investment program. The program not only emphasises economic returns but also places great emphasis on sustainable timberland management practices and their wider environmental impact, including sustainable timberland management through various initiatives such as CO2 compensation projects, wetland protection, improvement of ecosystems for natural credits, leasing of agricultural rights and other ways to optimise land value.
Manulife Investment Management manages approximately 2.3 million hectares of timberland in the United States, Canada, New Zealand, Australia, Brazil and Chile, and all of these timberlands are certified under either the sustainable Forestry initiative® (SFI®) or the Forest Stewardship Council® (FSC®). The company has more than 35 years of experience in sustainable forestry. Furthermore, the company also manages approximately 162,000 hectares of farmland in large agricultural regions of the United States and Canada, Chile and Australia.
Manulife Investment Management is Velliv’s partner in the first timberland investment and has begun the process of selecting timberlands in North America and Oceania, where they will spread Velliv's investment over the next 5-6 years. All in all, Velliv expects to have 4-6 areas out of a total of: