Investor demand for farmland and forest investments has recently been increasing in the Asia region. This is largely due to the appeal from an environmental, social, and governance (ESG) perspective, which is a global trend. There is also an inflation hedge effect. However, in South Korea, the number of investors interested in these 'natural capital' asset classes is still not as high as in Japan or Australia.
Mike Perry, Head of Global Client Group and Global Product at Nuveen, noted during a recent meeting at Nuveen's Seoul office in Yeouido that the firm oversees asset management operations.
Nuveen, an asset management company under the Teachers Insurance and Annuity Association of America (TIAA), is one of the top five real estate managers in the world. It operates in 32 countries and manages about $1.2 trillion in assets as of the end of March. The Seoul office was opened in March 2021 and marks its 10th anniversary of managing domestic institutional funds this year.
According to Nuveen, global limited partners (LPs) are significantly adjusting their portfolios in response to changes in the market environment. Climate risk is a key factor they consider when making future investment decisions. The results of Nuveen's annual EQuilibrium Global Institutional Investor Survey showed that most investors are either currently (61%) or planning to consider climate risk (22%) in their investment decisions.
Mike Perry emphasized that "investing in farmland and forests can lower the risks associated with various assets," adding that "for large institutional investors like pension funds, food produced here can serve as a means to hedge against inflation."
Farmland and forest land exhibit lower volatility and stable total returns compared to stocks or bonds. At this time, revenue primarily arises from crop harvests, rental income, and timber sale profits. The average annual return for farmland and forest land from 1992 to 2022 was approximately 10%.
According to Nuveen, pension funds in the Asia-Pacific region (APAC) show a higher interest in nature-based solutions (NBS) compared to the global average. NBS involves sustainably managing ecosystems such as farmland and forests, which are termed 'natural capital,' to address social issues like climate risk.
Mike Perry stated that "investments in forest land are considered attractive assets when considering climate change or carbon trading rights due to their eco-friendliness," and added that "there has not been a significant amount of investment related to natural capital in South Korea yet. From the perspective of customer demand, interest among South Korean investors is not as high as it is among investors in Australia or Japan."
He revealed that in addition to natural capital, investors are paying attention to Infrastructure Debt concerning climate risk. He explained, "Infrastructure debt investments can utilize high interest rates while offering good defenses against various risks," adding that "this interest is not limited to South Korea but is high across all countries."
He remarked, "Among these, providing project financing (PF) for renewable energy-related projects is promising," explaining that "with the advent of artificial intelligence (AI) into daily life, there has been an explosive increase in demand for data centers worldwide." He continued, "We expect a significant amount of capital will flow into financing the construction of generation facilities such as wind and solar power."