In this series of short profiles, we ask leading fund managers to defend their investment strategies, reveal their views on cryptocurrency, and tell us what they'd never buy.
This week our interviewees are Robert Guest and Richard Kelly, Co-Founders and Co-lead Fund Managers of Foresight Sustainable Forestry PLC (FSF).
Which Sector Shows the Biggest Promise in 2023?
There’s a huge buzz in our industry about investing in nature. Everybody loves the idea of it, which means the potential demand is huge. It will happen – and is already happening in some areas – but it is relatively nascent and complex, so the investment risk profile remains quite high. We also see a massive sustainable investment opportunity in making farming food supply, raw materials, and timber supply more sustainable. If that can be achieved whilst also materially improving nature, the sector could achieve scale quickly.
What's the Biggest Economic Risk Today?
Persistently high inflation becoming embedded into the economy, with interest rates remaining ‘higher for longer’. If both energy and food prices were to spike up again to unexpectedly high levels this coming winter it could be a real challenge for traditional asset class valuations, in particular for those with very long dated cashflows.
Describe Your Investment Strategy
Generating the maximum amount of value uplift by developing new woodland and securing voluntary carbon credits – whilst managing an existing portfolio of harvestable timber to provide cash flow and a solid under-pinning. We’re primarily a developer, but we also own land freeholds and stocks of established timber which are continuing to grow, adding value with each passing year.
With fundamental shortages of land and timber in the UK, we believe forestry and afforestation (i.e. planting new woodlands) will deliver real returns over horizons of 5 years or more. We exercise stringent investment discipline on acquisitions, carefully manage cash flow and aim to exit assets well. Alongside these financial returns, we deliver strong sustainability and ESG outputs for investors - backed up with data to prove it.
Which Investor(s) Do You Admire?
Robert Guest (RG): For me, it’s a fellow Scot - Andrew Carnegie. He was a self-starter with real assets who saw the market opportunity, introduced processes and efficiencies, made shrewd M&A decisions with killer exit(s) and was philanthropic too.
Richard Kelly (RK): For me, it’s Warren Buffett. The definition of a disciplined investor who invests for the long term. He has consistently delivered staggering investment performance and is remarkably humble about it all.
Name Your Favourite 'Forever Investment'
RG: I’m a Big fan of Polar Capital Global Insurance.
RK: Amazon – it’s had an incredible journey so far with a highly diversified business model and has become increasingly ingrained into the fabric of society.
What Would You Never Invest In?
RG: People who aren’t highly self-motivated and trustworthy.
RK: Unregulated crypto currencies.
Growth or Value?
RG: In the current UK market, value.
RK: Right now, value stocks.
House or Pension?
RG: Pension, if possible.
RK: I’d get on the property ladder first, then prioritise pension.
Crypto: Brilliant or Bad?
We don’t necessarily have a view on crypto as a direct investment opportunity. However, in the world of natural capital and voluntary carbon markets the underlying technology of crypto could be incredibly useful. If we are ever going to have liquid trading of carbon credits (e.g. ETFs) then some sort of block-chain based audit trail and system for when a carbon credit has become verified and a way of destroying the credit/token once the offsetting has taken place could play a big and fairly vital part in that.
What Can be Done to Improve Diversity in Fund Management?
RG: I think many are keen on hiring diversely but potentially struggle to access the broad range of candidates. Investing in training programmes and internship schemes that pull candidates in from a wider catchment than ‘the norm’ might be a good way to increase the supply, helping the industry to act on good intentions.
RK: For me, focusing on supporting women who have taken time out to have children and who are looking to continue their fund management careers is a priority. Offering these women additional tailored support and more work-place flexibility would go a long way towards enabling more women to successfully return into fund management.
Have you Ever Engaged With a Company and Been Particularly Proud (or Disappointed) of the Outcome?
RG: I worked in renewables greenfield project development (bioenergy) before joining Foresight. I’m proud of the Rothes CORDe project we developed. We funded it at c.11% (project, unlevered), exited at c.8.5% and then several years later it was sold again for c.5%. It was built on time and on budget and still works well today. But some of the projects never got off the drawing board and that was disappointing. Development is very rewarding but isn’t easy. The trick is knowing which horses to run with and which ones to let go.
RK: I’m particularly proud of the positive impact that FSF’s Skills Training Programme has had on members of the communities we operate in. The programme sees FSF fully fund three weeks of training for candidates who live close to FSF’s tree planting initiatives. Participants receive all the training, skills, certifications, health and safety equipment and mentoring they need to commence a new career in forestry. Having interviewed last year’s graduates, it was a source of huge pride to hear the positive personal and professional impact upon their lives.
What's the Best Advice You’ve Ever Been Given?
RG: Angus Macdonald, on career choices: “Read the newspapers and books and work out what things you think are going to be major global challenges and opportunities. Those things are the massive investment opportunities of the future and are sectors that will grow rapidly.”
Once I realised that some of the biggest challenges and opportunities that we face are linked to sustainability issues (which I also really care about personally), I didn’t look back. The combination of working in a sector that you’re passionate about, but which is also one of the greatest investment opportunities since the industrial revolution, is a pretty powerful mix - thanks Angus!
RK: “Do what you love and are passionate about… and the rest will come.”
What Would You be if You Weren’t a Fund Manager?
RG: Probably getting involved in a start-up looking to provide services to the natural capital sector.
RK: An entrepreneur. I see strong overlaps between fund management and entrepreneurship, including being able to spot opportunities early and capitalising on a first mover advantage.
