Ex-Goldman analyst seeks timber angels

Forbes Elsworthy is founder and chief executive of Craigmore Funds Group, a recently established UK/New Zealand group that has just started marketing to outside investors for its Craigmore Forestry Fund.

The fund is managed by Craigmore Sustainables LLP, comprising Elsworthy himself and former investment banker Reg Brown, who visited Hong Kong this week.

New Zealander Elsworthy previously worked as a research analyst at Goldman Sachs and a credit trader at Merrill Lynch, heading a convertibles-trading desk. He subsequently founded a financial software company called Credit Market Analysis, which he sold to the Chicago Mercantile Exchange in 2008.

His family trusts have put NZ$10 million ($7.2 million) into the fund in the form of cash and assets, at cost.

The Craigmore Forestry Fund has a target of NZ$50 million to NZ$100 million in the first year, with a three-year lock up and monthly liquidity thereafter. If the fund is fully invested, the liquidity will be derived on a bridge basis from a related vehicle, the Craigmore Yield Fund.

The fees for investors are an annual management fee of 1.25% and a carried interest of 20% of gains above a 5% hurdle rate. The planned annual dividend for investors is 3%. 

The idea is to grow trees. The reason they picked New Zealand is not only because their family roots are there, but because it is the only country with an emissions-trading scheme that includes forestry. That scheme pays out carbon credits as the trees grow and capture carbon.

However, one glitch is that when the trees get cut down, a large amount of that carbon credit must be repaid. If the price of carbon credits rises in the meantime, that could mean a loss for the investors.

The reasoning behind having to repay that money is because, once the wood has been harvested, it is conceivable that it could be burnt for fuel and go straight up the chimney, returning the carbon to the atmosphere.

Craigmore hopes the laws concerning carbon forestry will be amended, so that credits earned from timber not turned into pellets and burnt will not have to be repaid.

“The price of timber did not double in the noughties, as other commodities did,” says Elsworthy. “It started the decade at a price of about $120-140 per cubic metre, and then halved [although it has recovered somewhat since].

"That’s because of the demand for paper falling as the world moved digital and because Russia cut down its forests in Siberia, flooding the markets," he adds. "Russia is now being more protective about those forests left untouched.”