Providing a home for plant species and wildlife, offsetting greenhouse gas emissions, regulating our water supply, providing jobs and a place to escape and walk, hike or raft … forests impact our lives in many positive ways.
Yet every year, 7.6 million hectares of forest are lost globally.
It’s a problem US-based investment group Conservation Resource Partners LLC, has been tackling since it was founded by John Tomlin, Paul Young and Kent Gilges back in 2004.
In the US, much privately-owned forest land is worth more for development than it is for timber. By aligning private equity with conservation capital, Conservation Resources can buy timberland and manage it as a sustainable working forest, protecting the area from development and providing a competitive rate of return for investors.
We spoke to partner and managing director Kent Gilges from his office in Upstate New York, to find out more.
A lifelong interest in conservation
“When I was a kid, I started birding,” says Kent, explaining how his long-standing interest in conservation began.
“I had a favourite place I went to not far from my house. I could wander down across a stream and I’d be in this meadow. Then, one morning, I walked down and there were orange stakes driven into the ground. They developed the whole thing and turned it into a residential housing area. They took away my favourite place … I thought, at some point I want to figure out how to save these favourite places.”
Kent’s passion held fast over the years, his thinking, however, evolved. While studying Forestry at the University of Oxford, he realised the big question was not, ‘how do we stop development’ but, ‘how do we save what’s important?’
After graduation he thought he’d end up working in national parks and protected-area conservation in Africa, where he was born. But his head was turned by a conservation organisation in the US, the global non-profit The Nature Conservancy.
“I fell in love with their approach, which was ‘let’s not be activists, let’s not fight about it, let’s go out and buy it’,” says Kent who went on to work in timber acquisitions at the Conservancy for 15 years. “It matched up with my thinking of using the markets and financial tools we have to help protect things.”
Why the need for Conservation Resource Partners LLC?
While he was working at The Nature Conservancy in the early 2000s, however, Kent and his Conservation Resources co-founders John Tomlin and Paul Young realised there was a need for a new approach to investment if forests were to be protected.
The Nature Conservancy was very effective, but public money and philanthropy would never match the need for land conservation.
“At the time there was a real sea change in land ownership,” Kent explains. “You had these huge companies, associated with paper mills, who’d owned land for 100 years plus. They weren’t always the best managers, but the land was going to stay as forest for as long as they owned it. Then along came ‘corporate raiders’ like [the tycoon] Sir James Goldsmith.
“Goldsmith noticed that because these companies had owned land for so long, it wasn’t worth anything on the books. He realised if you spit the companies up, you could sell the land and the company was worth much more in parts than as a whole. He made a killing, but he also started a trend of the sale of millions of acres of timberland in the US.”
“Huge tracts of land were going from an owner that had a hundred-year horizon, to financially-based owners that had a 10-year horizon because they were based on private equity fund structures.”
From a conservation perspective, financial investors buying big and selling small in ten years was a disaster, as it would lead to fragmentation and the loss of large forestlan
If we wanted to conserve forests at the scale they were being sold – in the millions of acres – we needed to engage with private equity.
Attracting private equity
Embedded within any large tract of land there are lakes and rivers, which are important areas for conservation. Home to numerous species of plants and fish, these freshwater environments provide a feeding ground for birds and mammals and are important for moderating floods and water quality in the area. Unfortunately, they’re also attractive places to build houses, making them high value and high demand.
“If we wanted to conserve forests at the scale they were being sold – in the millions of acres – we needed to engage with private equity. We needed capital and the ability to move quickly,” says Kent.
In 2004, Conservation Forestry (which was renamed Conservation Resources after expanding to include investments in agricultural land alongside timberland) was launched, managing private equity funds in the real asset space. By partnering with conservation groups, Conservation Resources offered a market rate of return to investors but with lower risk. They were working with conservation groups, who bought the critical areas. So the investors weren’t paying for speculative real estate development, but something closer to a pure timber investment.
The first fund of $129 million was raised in 2005, and Conservation Resources is now raising its sixth fund and has raised and invested more than $1.1 billion. Around 60% of investors are pension funds with the remainder a mix of high-net-worth family offices and foundation endowments.
The Penobscot River Project
While the work of Conservation Resources is far-reaching – the organisation has permanently conserved around 150,000 hectares of timberland – one project that really exemplifies its work is the Penobscot River Project, in central Maine.
Conservation Resources bought various parcels of land, adding up to around 340,000 acres, from a family-owned company in Maine. There were numerous conservation opportunities on the land, including a parcel on the east side of Baxter State Park in the Millinocket region. The land contained around 12 miles of the East Branch of the Penobscot river, an important river for Atlantic salmon and recreation including rafting.
“The rest of the land around that stretch was commercial timberland,” says Kent. “So we worked with three different groups, The Forest Society from Maine, the Open Space Institute and an individual family foundation run by a guy named Gil Butler.
“Gil’s key interest was protecting river corridors for canoeing and introducing kids to nature. We ended up selling him a corridor with a quarter mile on either side of the river all the way up. Now there’s a trail system so you can hike or ski up the river and an education centre taking school groups out onto the river to enjoy nature.
“We own the land around it and are managing it commercially as timberland, meaning the river resources are protected permanently.”
Expanding into agriculture
While Conservation Resources initially focused solely on forestry, in the past two years the company has expanded into agriculture, meaning it can help protect wetlands and farmland, too. The expansion came about after The Nature Conservancy in Kansas, asked for help financing a 33,000-acre ranch to protect an area for an endangered grouse known as the lesser prairie chicken.
“We’ve built an agriculture team within the group to bring the expertise of those markets and commodities to the firm and essentially start a new asset class,” says Kent. “For us, broadening our franchise and working across a wider part of the landscape is the best way to increase our impact.”
Kent Gilges is Mananging Director of Conservation Resource Partners LLC. Find out more on his LinkedIn page.