LXG Amazon Reforestry Fund
Timber investment is an attractive asset class
- Timber products touch our lives on a daily basis, though few people have ever considered timberland as a potential investment. That is gradually changing, however, as more investors discover the little-known fact that timberland investments have generally outperformed stocks, bonds, and commodities over the long run.
- The value of assets under management (AUM) by timberland investment management organizations (TIMOs) has doubled in the past ten years. Forestry has developed to be a truly international asset class, with more than US$100 billion invested
- Continued investor interest is driving competition for forestry assets in key countries such as the United States, Australia, New Zealand, Brazil, Uruguay, and regions in Europe
- Timber is one of the assets with highest correlation to inflation, and has beaten most other asset classes in its performance.
- The Amazon rainforest provides unique benefits, mainly an abundance of water and proper sunlight exposure, that ensure proper biomass growth.
- A TIMO focused on Tropical industrial timber which would not be used for pulp and paper should be a unique opportunity to diversify within the timber asset class.
- It is estimated that two-thirds of large institutional investors plan to increase allocations to real assets to 20% over the next two decades.
Bolaina (Guazuma Crinita) is a species native to the amazon region of Peru, Brazil and Bolivia.
Although many other species are more valuable, few are as easy to grow – this sun needing species appears quickly in fallow fields and can be ready to harvest within a few years with minimum silvicultural intervention.
Common uses include house construction and boxes manufacturing (in the form of boards), and fencing (in the form of posts).
The Bolaina should replace the consumption in Peru of the Pinus Radiata from Chile and the in the Andean Region.
Bolaina is mainly use for pallets and as light posts.
Density: 0.41 g/cm3.
Marupa (Simarouba Amara) is a species native to the amazon region of South America.
One of the distinctive characteristics of the species is its light weight, low volumetric density and excellent reaction to preservation chemicals.
Due to its lightweight, Marupa is mainly used in the fabrication of furniture and other basic products such as boxes and pallets.
The species should replace the local consumption of other imported woods such as the African Obeche
Marupa is exported to Mexico as tables and then exported as furniture to USA.
Density: 0.36 g/cm3.
Teak (Tectona Grandis) is a tropical species that occurs in mixed hardwood forests.
The species’ natural oils make it useful in exposed locations, and make the timber termite and pest resistant; teak is even durable when not treated with oil or varnish.
Teak is often an effective material for the construction of both indoor and outdoor furniture, particularly due to its high oil content, high tensile strength, and tight grain.
Praised for its durability and water resistance, this type of Wood is generally used for boat building.
Other uses include cutting boards, indoor flooring, countertops and as veneer for indoor furnishings.
India is the main global demander of teak wood, with annual imports over US$550 million.
Density: 0.69 g/cm3.
Capirona (Calycophyllum spruceanum) is a species native to the northern region of South America.
The species’ main advantages include ease of saw, good workability, above-average resistance to biological attack plus not needing preservation.
Common uses include boat building, construction, decking, flooring, furniture, railroad ties, and tool handles.
Recent research has discovered the high-medicinal and pharmaceutical value of Capirona, in treating diabetes for example.
Density: 0.76 g/cm3.
High-tech breeding ground located in the district of Von Humboldt - Ucayali, 2 hours from Puerto Inca plantations.
The purpose is producing and marketing forest plants (exotic and native) and fruit for the Peruvian market, innovating in the form of production.
Capacity of 1.2 million plants a year.
About LXG Amazon Reforestry Fund
- Our mission is to help save the Amazon rainforest with attractive profitability. To obtain the necessary resources and scale, the LXG Amazon Reforestry Fund needs to generate atractive financial returns to investors, contain risks and execute the business model with excellence.
- The business model of LXG ARF consists in reforesting areas of the Amazon that have been degraded by livestock, agriculture, illegal mining and illegal logging. Specifically, LXG ARF will seek to counteract the adverse effects of these activities in the environment, in global warming and in biodiversity, and to generate attractive returns to its investors.
- Reforestation and/or forestation shall be made with native high-yielding species, which allow generating products of high added value, and with non-native species with a favorable record in the region. To accomplish this, LXG ARF shall have the support of specialized forestry operators and external forestry advisors with a reputable track record. Furthermore, LXG ARF will seek to obtain various international certifications to validate its commitment to nature and global warming, such as the Rainforest Alliance certification. Notwithstanding the foregoing, the business model of LXG ARF also includes purchasing properties in already reforested and/or forested areas.
- It is worth noting that, worldwide, investments in the forestry sector have had attractive returns with less volatility than real estate investments, and investments in variable income and fixed income. This is mainly due to the fact that the global demand for wood has increased consistently in recent years, while the supply is increasingly limited. Unlike other classes of assets, forestry investments, because of their nature, allow the investor to have assets that revaluate over time.
- In the last thirty years, overall returns on forestry investments in the United States of America (based on the NCREIF Timberland Index) have been 10.6% per year, while returns on the real estate industry (NCREIF Property Index), variable income (S&P 500) and fixed income (Merrill Lynch Global Broad Market Index) have been 8.0%, 7.5% and 4.8%, respectively. In this connection, it should be noted that institutional investors worldwide currently have about US$60,000 million in forestry investments.
- Due to its climate conditions and its proximity to the Equator, the Amazon provides a favorable environment for the development of native high-yielding species (such as, for instance, bolaina, capirona and marupa) and for the development of non-native species (such as, for instance teak). For this reason, LXG ARF will focus on species allowing to generate final products of high added value and seek to position itself as a supplier thereof. It should be noted that the transformation of these species does not require major investments in machinery and facilities, as is actually the case of pulp.
- The business strategy of LXG ARF is also supported by the ongoing regulatory improvements in certain developed countries that are part of the European Union, which in turn could benefit formal producers with high quality standards as LXG ARF.
- Even though the core business of LXG ARF is reforestry, it will also seek to engage in supplementary activities that generate synergies, including some that incorporate industrial elements, such as the transformation of timber into value-added products. In this connection, it should be noted that the objective will always be to improve the efficiency in the use of land, raw materials and other materials, and the returns of LXG ARF.
- In sum, LXG ARF will invest in forestry, reforestry or any other timber-related projects, and in any kind of forestry assets, including, but not limited to, infrastructure, plantations and equipment, and the title, beneficial ownership or surface rights over certain real properties, whether directly or indirectly. Furthermore, when permitted by the conditions, LXG ARF will seek to benefit from the tax benefits for the development of economic activities in the Amazon. This, it is expected that the investments of LXG ARF will be diversified, focusing, among other things, on various tree species, in different geographical areas and various markets worldwide. With this, LXG ARF will seek to generate sustainable returns, control its volatility levels and manage its risks appropriately
- For LXG ARF to reach a significant size and scale, LXG Asset Management is required to have sufficient flexibility to make capital increases rapidly and efficiently. For this reason, upon starting of the activities of LXG ARF, LXG Capital, the majority shareholder of LXG Asset Management, and the sole partner of LXG ARF at such time, will authorize a capital increase of 50,000,000 shares and delegate on the Investment Committee, among other things, the authority to set the conditions of the respective issues over time, and the conditions and opportunities to exercise the preferred subscription right attached to each partner in each issue of shares. In this connection, it should be noted that this is a fundamental aspect to the success of LXG ARF and for the fulfillment of this Mission.
Focus on the Amazon
- For many years, the Amazon has undergone unrelenting deforestation. An estimated 250,000 hectares of native forests are estimated to have been deforested only in Peru since 2014. Deforestation also has an adverse effect on multiple endangered plant and animal species, such as the ceiba and the jaguar. For this reason, LXG ARF will seek to counter the effects of deforestation by contributing to protect the various ecosystems by developing forestry projects, biological corridors and social initiatives, which are expected to generate attractive returns
Furthermore, it is worth noting that the Amazon is host to various illegal activities, mainly (i) growing of plants for transformation thereof into narcotics, such as cocaine, (ii) illegal mining, and (iii) illegal logging of natural forests.
These illegal activities are harmful per se, but also cause collateral damages to the local communities, such as minors trafficking, the contamination of water intended for human use with toxic products, such as mercury and the non-insertion of minors to the educational system,
among others. One of the most efficient mechanisms to reduce the impact of these illegal activities is creating employment alternatives for the local communities. Accordingly, the forestry operations of LXG ARF will seek to generate opportunities that foster security, sustainable development,
social inclusion and prosperity among the people of the Amazon, seeking to do good and do it well.
Even though LXG ARF will start its operations focusing in the Amazon of Peru, it expects to expand its activities to other countries in the near future.
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