XP Inc.Brazil’s largest brokerage, is preparing to raise as much as 2 billion reais ($ 360 million) for its first forest fund as low interest rates increase demand for alternative investments.
Cleidson Rangel, a natural resources specialist, is joining the XP fund management unit to run a new operation focused on the sector, according to Bruno Castro, chief executive of XP Asset Management. The company also plans to create farmland and carbon credit funds, said Castro.
“There are so many investment opportunities in a country as big as Brazil,” Castro said in an interview. “And those refunds have no correlation with other markets, so they are a real diversification alternative for local and foreign investors.”
Brazil’s fund industry posted a net inflow of nearly 39 billion reais in January and February, after raising 174 billion reais in 2020, according to Anbima, the country’s capital markets association. Interest rates near record lows have persuaded many investors to seek non-traditional assets to increase profits. Money has been pouring in even as the country reeling through the Covid-19 pandemic with infection rate it’s one of the highest in the world.
The forest fund plans to start raising money in May or June, according to Castro. Potential investors will initially include pension funds, endowments, sovereign wealth funds, insurance companies, family offices and private banking companies, he said, adding that XP would also provide seed money.
The company is also considering ways to allow retail investors to participate, according to Isaac Sutton, a partner at BH26, a boutique that focuses on natural resources in Brazil who is an exclusive XP advisor.
Foreign investors are allowed to buy a maximum of 49% of a plot of land in Brazil, so the XP fund will be a means for them to invest without exceeding that threshold, said Rangel, who has been Brazil’s investment director for nearly 10 years. at Hancock Natural Resource Group, global investment manager. He has also worked at FourWinds Capital Management and Forest Systems, with a focus on carbon credits and land investments.
The aim is to obtain environmental, social and governance certifications for all products sold by the new natural resource unit to attract a growing segment of ESG investors, said Castro.
Rangel said there was a potential market of $ 50 billion in investing in forest land in Brazil and $ 400 billion in agricultural land. Only 8% of Brazil’s timber plantations are in the hands of investors, and more pulp and paper producers are willing to sell, he said.
Iba, the national forest industry association, estimates investment in this sector will amount to around 35.5 billion reais from 2020 to 2023, double the combined amount the previous four years.
The fund’s strategy will diversify risks by buying mature forests with different types of timber buyers, Sutton said. It will be denominated in reais and aim to yield at least 7% above the inflation rate. The returns will result from increased land value and profits from timber sales and carbon credits, according to Sutton, a former head of ownership investment at Grupo Safra SA, a Brazilian banking group.
XP Asset Management has 100 billion reais in assets under management and aims to double that in two years, said Castro.