By Gerelyn Terzo, Global AgInvesting Media

Gresham House, a U.K.-based alternative investment manager with £3.4 billion ($4.6 billion) in forestry assets under management, is going all in on timber. The firm clinched over £375 million ($500 million) for the final close of its latest forestry fund, Gresham House Forest Fund VI, its biggest one to date. Fund VI reportedly attracted major investors including multiple British pension schemes. Gresham’s Forest Fund VI, which delivers both income and the potential for capital appreciation, is eyeing returns in the ballpark of 8 percent and will direct the proceeds toward planting forests across the country.

Not only does this fundraising represent Gresham House’s biggest forestry fund so far, but the firm also believes it’s also one the most substantial forestry fundraisings in U.K. history based on institutional investor demand. Participants in the round included London LGPS CIV Limited, multiple Wales Pension Partnership (WPP) Partneriaeth Pensiwn Cymru member funds, and a key Japan-based investor.

Olly Hughes, managing director of forestry at Gresham House, has observed signs that momentum for the timber asset class is building. He shared, “This milestone fundraise is a clear reflection of the increasing global recognition of European forestry as a compelling asset class.”

Hughes further explained that forestry demand typically originates from U.S. investors, as the fragmented markets of continental Europe and the U.K. have proven more challenging to access at scale. Timber, however, has become an increasingly popular asset class as investors hunt returns that are uncorrelated to the volatile mainstream financial markets while also aligning with their sustainability standards. Forestry is also looked to as an inflationary hedge, yet another key driver of growing global demand. At 3.5 percent, U.K. inflation is among the highest of G7 nations, second only to Japan and ahead of the U.S.

Capital from the latest fundraising will be directed across the U.K., focusing on a mix of unplanted land designated for productive woodland creation and mature forests. This approach aims not only for financial gains but also for significant environmental benefits.

Gresham House Forest Fund VI pursues an asset-backed strategy, designed to offer investors attractive and diversified returns. Additionally, it emphasizes positive environmental impact by sequestering carbon, boosting biodiversity and improving natural capital. The fund’s current portfolio spans more than 6,000 hectares (14,826 acres) across a dozen properties situated in Scotland and Wales.

With a target net internal rate of return (IRR) of 8%, the fund’s revenue model is two-pronged, comprising sustainable timber harvesting and the potential appreciation of land values. Additionally, it holds the potential to create revenue from the development and operation of renewable energy projects on its forest sites.

Forestry as an asset class has a proven track record, delivering strong, risk-adjusted returns for decades, fueled by strengthening land values, rising timber prices and steady investor appetite for sustainable assets. Forestry has a proven ability to withstand fluctuations in broader macroeconomic cycles, benefiting from the natural growth of trees that continue to deliver dependable biological yields.

Beyond its financial targets, Gresham’s forestry fund is set to make substantial contributions to environmental goals, including carbon reduction, protecting biodiversity and flood mitigation. Over the coming decades, the fund is expected to sequester 4.7 million ton of CO2. When possible, fund investors will receive distributions in the form of carbon credits, offering them the option to either sell these for additional profit or keep them for their own carbon offsetting goals.

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