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Manulife offers market hedge with US$16 billion bet on trees
[May 31, 2024]

At Manulife Financial Corp.¡¯s asset-management business, a slow and steady investment with some novel revenue sources is proving lucrative for the Canadian insurer: timber.

The firm has amassed more than US$16 billion of timberland and agricultural assets under management in countries including the U.S., New Zealand, Australia and Brazil as it sought alternative investments to help diversify both its own portfolio and those of its clients. When held over decades, the investments help Manulife match the longer-duration liabilities of its life-insurance policies and offer opportunities for extra revenue, its executives said.

¡°Timberland is not correlated to the fate of equities,¡± Paul Lorentz, chief executive officer of Manulife Investment Management, the company¡¯s wealth- and asset-management division, said in an interview. ¡°There are also opportunities to generate other income,¡± he said, pointing to carbon-offset credits, renting the land out and selling forestry products such as pine straw.

Investor appetite for timber has increased amid climbing levels of energy consumption, food demand and construction, as well as efforts by corporations to mitigate the impacts of climate change. The assets helped Manulife ¡ª which says it¡¯s the largest investment manager of timberland for institutional investors ¡ª score $9 billion (US$6.6 billion) of net inflows into its institutional asset-management business in 2023, up 84 per cent from the prior year. In the third quarter, the timber business drove higher performance fees in its wealth- and asset-management business, it said at that time.

¡°A lot of folks steer away from timber because of short-term price fluctuations, but we have a long-term philosophy,¡± Chief Executive Officer Roy Gori said in the interview.

The sector is indeed prone to big swings in value, but as of 2022, privately owned US timberland generated a 20-year average annual return of 7.2 per cent, according to the National Council of Real Estate Investment Fiduciaries Timberland Property Index, which tracks investment performance in the sector.

There are other major asset managers in the area ¡ª MetLife Inc.¡¯s institutional investment-management business has built an expertise in loans backed by timberland as collateral ¡ª and even rich families have taken an interest in forestry assets in recent years to diversify their holdings and act as a hedge against inflation.

Manulife Investment Management in April secured more than US$330 million of commitments in a second close of its Manulife Forest Climate Fund ¡ª including its first corporate investors. The fund gives backers access to forests that prioritize carbon sequestration over timber production and seeks to generate carbon credits for investors.

The business of selling voluntary carbon credits to polluters is poised for surging demand, but it can be fraught, with allegations such as data fraud and questionable accounting practices denting its reputation. Manulife¡¯s executives said they recognize the importance of credibility in the space and say they hire their own teams to manage the timberland ¡ª overseeing about 5.4 million acres (2.2 million hectares) ¡ª and use third-party certification programs to validate the sustainability of their forestry assets.

Manulife manages most of its forestland assets for institutional clients as part of its wealth-management business. But the company also held $5.7 billion of timber and agricultural assets in its own general fund as of the end of last year. The land makes up a portion of the firm¡¯s alternative, long-duration assets, held in a portfolio for investing customer insurance premiums that also includes private equities, government and corporate bonds, mortgages and cash.

The assets help Manulife generate revenue from one more surprising activity: relocating a species of tortoise that¡¯s under threat. In Florida, it¡¯s set up a conservation bank on one of its timber properties to rehome gopher tortoises ¡ª and sells credits in exchange for accepting the reptiles.

Source: bnnbloomberg.ca