April 13, 2021

By Lynda Kiernan, Global AgInvesting Media

XP Asset Management has hired Cleidson Rangel, a natural resources specialist and former Brazil Fund Manager with Hancock Natural Resource Group (HNRG) for almost 10 years, to head up its new Natural Resource Investments unit.

The first goal for this new natural resources unit is the planned launch of an initial timberland fund, to be followed by farmland and carbon funds as XP Asset Management aims to double its assets under management from its current R100 billion (US$17.5 billion) over the course of the coming two years.

Interest rates approaching historic lows have investors looking toward alternative asset investments in the hunt for returns, and despite numerous challenges in-country due to the COVID-19 pandemic, capital is flowing in the country, with Brazil’s fund industry securing nearly R39 billion (US$6.8 billion) in the first two months of this year, following inflows of R174 billion (US$30.5 billion) in 2020, according to Anbima, the capital markets association of Brazil.

Fundraising for the timberland fund is to begin in May or June with a target of R2 billion (US$360 million) from pension funds, endowments, sovereign wealth funds, family offices, insurance companies, and banking firms. 

However, the fund is also considering structuring a way for retail investors to eventually buy in, Isaac Sutton, partner at BH26, a boutique natural resource investor in Brazil and exclusive advisor to XP, told Bloomberg.

This fund will be a structured vehicle to give foreign investors, who are by law restricted to holding up to a 49 percent stake in any given parcel, access to Brazilian land investment within that parameter.

Denominated in reais, the fund is targeting a minimum yield of 7 percent above the rate of inflation, with returns being driven by increases in land valuation as well as the sale of timber and carbon credits, according to Sutton, who explained that the fund will mitigate risk by acquiring mature forest properties with diverse buyers. 

As deforestation becomes an ever-more critical global concern, demand for sustainable wood is growing as well – with sustainably produced Brazilian timber gaining particular attention as a substitute for exotic woods from the Amazon.

Investments in Brazil’s timber sector are estimated to total approximately R35.5 billion (US$6.2 billion) between 2020 and 2023, or double the investments for the entire previous four years, according to Iba, the country’s timberland industry association.

Rangel noted that currently a mere 8 percent of Brazil’s planted timber forests are controlled by investors, with an increasing number non-investor owners willing to sell, reflecting a path of expansion in Brazil’s timberland market that has a potential value of $50 billion, while the country’s farmland market has a potential value of $400 billion. 

Just last month, Hancock Natural Resource Group (HNRG), a company of Manulife Investment Management, acquired 12,874 hectares (31,812 acres) of eucalyptus plantations in Mato Grosso do Sul, Brazil, through its affiliate Sempre Verde Florestas e Agricultura Ltda, from AMATA, through AMATA subsidiary APEI Plantio de Floresta Exotica S.A. (APEI).

All of AMATA’s forestry operations are FSC certified, and the company operates according to the best practices of environmental, social, and corporate governance (ESG) through sustainable and profitable management to bring its engineered wood products at scale to the civil construction sector in Brazil.

Much the same, the goal of XP is to ensure that all products sold by its new natural resources unit will have ESG (environmental, social, and governance) certifications to draw in the rapidly expanding class of impact investors.

– Lynda Kiernan is editor with GAI Media, and is managing editor and daily contributor for Global AgInvesting’s AgInvesting Weekly News and  Agtech Intel News, as well as HighQuest Group’s Oilseed & Grain News. She can be reached at lkiernan@globalaginvesting.com.