Tools & Resources

Investment in Ecotrust Forest Fund II

This case example appeared originally in Essentials of Impact Investing: A Guide for Small-Staffed Foundations
Investor: Lora L. & Martin N. Kelley Family Foundation Trust
Investee: Ecotrust Forest Management, Inc. - Forest Fund II, LLC
Asset Class: Private Equity - Fund
Investment Amount: $750,000
Impact Sector(s): Environmental Conservation & Preservation
Date of Investment: 2013
Projected Exit: 10 years
Financial Return Goal: Market Rate
 
Lora and Martin Kelley created the Kelley Family Foundation (KFF) in 1990 to enhance the public good through education and by providing individuals and communities with tools for self-improvement. In 2012, the foundation hired a consultant to update its investment policy statement to commit to a goal of being 100 percent invested in impact investments by 2020. During this process, the foundation reviewed several resources from the KL Felicitas Foundation website, including its investing policy statement. To date, KFF has placed investments in public equities, bonds, and private equities with impact goals. Currently, 45 percent of its investment portfolio has ESG screens or proactive impact investing goals. The expectation is that all of these investments will earn a market-rate return against respective benchmarks.
 
KFF had an existing relationship with Ecotrust on its grant-making side. After the foundation updated its investment policy and asset allocation, it was looking for additional investment opportunities for the alternative, non-correlated asset class, which is the class of investments that supposedly does not fluctuate in parallel with the market average. The Ecotrust Forest Fund II seemed worthy of further exploration both because it was a market-rate investment in this asset class and because it is located in the Pacific Northwest, which aligns with the foundation’s impact goals.
 
Process
KFF worked with its consultant to develop a revised investment policy, conduct due diligence, and prepare a write-up for the board. It also contracted a lawyer to review the operating agreement. After about six months of conversation and work related to due diligence, the board voted in favor of making the investment. It was an additional four months before the first round of capital closed.
 
Partners Involved In Investment
None
 
Projected Impact
The investment’s financial impact is still to be determined over the course of its ten-year term with up to two 2-year extensions. Its benchmark is NCREIF Timberland Index. In terms of social impacts, the investment provides jobs in rural, economically distressed communities through active harvesting, forest health treatments, fire management, infrastructure maintenance, and restoration activities on the properties. The Ecotrust Forest Management’s (EFM) Forest Stewardship Council-certified approach requires highly skilled workers, resulting in high-quality, better paying jobs for local contractors. EFM has a stated preference for local, minority-owned, or women contractors, and has maintained a greater than 75 percent level of local labor employment. In addition, Ecotrust Forests contracts with local mills to provide timber to smaller, family-owned mills, which in turn support the rural wood product industry. The organization is demonstrating that conservation-based forestry can provide improved forest health and ecosystem services such as carbon sequestration, improved water quality, and habitat for diversity, while achieving market-rate returns through riparian and habitat restoration. Lastly, the long-term and permanent impacts of the fund have been designed so that at the end of its investment period the manager plans to convey culturally and ecologically valuable land into the hands of long-termstrategic owners (such as tribes, conservation groups, and community forests) that can ensure the permanent protection of the social and ecological uplift created via the investment.
 
On-The-Ground Insights
Time and cost. This type of investment is time-intensive and the level of trustee time investment and due diligence requirements creates additional costs. However, these costs are comparable to other private equity investments.
 
Use consultants. Direct investments take work and commitment. Foundations with small or no staffs can use philanthropic and legal consultants to provide due diligence services.
 
Work on what you know. Look for investment opportunities that align with the trustees’ expertise areas. In this case, KFF trustees had strong forestry and finance knowledge in their professional backgrounds, which helped them understand and have increased comfort levels with a non-traditional, layered financing approach that included New Markets Tax Credits, riparian restoration, conservation easements, and carbon credits.

Have a question, website feedback, or idea to make our services better?

X

Welcome!

Please contact [email protected] if you have trouble logging in.