Latest / Second Nature / E176 Richard Kelly & Robert Guest: Britain Is Running Out of Trees

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E176 Richard Kelly & Robert Guest: Britain Is Running Out of Trees · Second Nature

• 0:07
  SPEAKER_02: So in um best romantic like dating show parlance.
• 0:11
  SPEAKER_02: How did you two meet?
• 0:12
  SPEAKER_00: Well, we both uh joined Foresight about 11 years ago, within about a month of each other.
• 0:19
  SPEAKER_00: Um, I think I joined first and you joined yeah, literally a a few weeks uh later.
• 0:25
  SPEAKER_00: Um and yeah, we were working in different teams, but we were both the you know the new boys.
• 0:31
  SPEAKER_00: Um and it Foresight was much, much smaller back then.
• 0:35
  SPEAKER_00: It was uh I was the 63rd employee, you were the 64th.
• 0:39
  SPEAKER_00: Um and we just kind of bonded over being oh, this is new, isn't it?
• 0:43
  SPEAKER_02: And much smaller in terms of AUM as well, right?
• 0:46
  SPEAKER_00: Yeah, AUM was uh uh 1.3 billion uh 11 years ago, and it's now over 10x that's awesome.
• 0:53
  SPEAKER_01: So you you'd be to the shard to see our offices, and I can't remember which floor you're on, then 17 or something like that.
• 0:59
  SPEAKER_01: And uh you know how the there's two two layers of lifts, so there's the kind of odd numbers and even numbers.
• 1:05
  SPEAKER_01: I probably bumped into rich, lost trying to work out how to get it, you know, in in that first two weeks of working somewhere, you're trying to where's your desk, where's the kitchen, how'd you get into the shard, security passes, and probably just kind of bumped into the kitchen with all.
• 1:20
  SPEAKER_01: And there was another guy who joined around the same time called John T, and we thought, well, we'll go for a go for a point of flat iron square and uh yeah, just connected over over that.
• 1:28
  SPEAKER_01: But Rich was new products, and I've joined the bioenergy team, and I was very much doing investment and you know management of assets as well.
• 1:38
  SPEAKER_01: But Rich was sort of launching these new products, and then seven years ago, um, there was a sort of campaign for kind of the next infrastructure, real assets products, and the kind of three that were, amongst other things, Rich was working on, because he was across the whole business.
• 1:55
  SPEAKER_01: But we had sort of three, I guess not competing, but three kind of ideas that bubbled up to the top.
• 2:01
  SPEAKER_01: We had hydrogen, forestry, natural capital, and then we had controlled environment, food, and agriculture.
• 2:08
  SPEAKER_01: So things like uh vertical farming and fish farming and onshore uh in tanks and stuff like that.
• 2:14
  SPEAKER_01: So those three things were kind of moving forwards, and and forestry team got put together.
• 2:22
  SPEAKER_01: It tended to be if there was a good idea, then you had to form a sort of team within Foresight to sort of cook it and bake it up a bit.
• 2:29
  SPEAKER_01: Is that a relatively quick process or does it go through multiple iterations of boards and panels and committees to decide that it was quite easy, which I thought it took a couple of minutes and you know, we just clicked our fingers and uh but I think there was quite a lot of groundwork, wasn't there?
• 2:42
  SPEAKER_00: I mean, the when we when yeah, the new products process the whole idea was it was sort of an in-house entrepreneurship division.
• 2:52
  SPEAKER_00: It was the the idea was to really accelerate new ideas.
• 2:55
  SPEAKER_00: Um, and so I mean the idea you know itself could be a you know literal one sentence, why don't we invest in trees or why don't we invest in hydrogen?
• 3:04
  SPEAKER_00: And then yeah, they we then form a project around that, and within six to eight weeks of kind of try and flesh out like a full business case and business plan for what it would look like and kind of testing is this an opportunity we want to pursue?
• 3:18
  SPEAKER_00: Um so yeah, they probably would launch one to two new ideas a year.
• 3:25
  SPEAKER_02: What's especially striking about that is so 11 years ago I'd have been in the public sector.
• 3:30
  SPEAKER_02: The idea of starting something new was a two-year process.
• 3:34
  SPEAKER_02: So one of my bugbears has always been there's a disconnect between the speed at which money and genuine professional investment needs to move and the environment sector needs to move.
• 3:43
  SPEAKER_02: Well, eight years ago, look how distinct that was.
• 3:45
  SPEAKER_02: Yeah.
• 3:45
  SPEAKER_02: You know, we wouldn't have had permission to even talk about something for two years, and within eight weeks you could stand up a new team and really look at something.
• 3:52
  SPEAKER_00: Yeah.
• 3:52
  SPEAKER_00: I mean, one one of the ideas I worked on before forestry, um, it was an idea for um an inheritance tax product.
• 4:00
  SPEAKER_00: So we we had an existing fund that enables um individuals who are concerned about 40% inheritance tax um uh on their estate, um, a way of mitigating that.
• 4:13
  SPEAKER_00: Um and the choices for those sort of sorts of investors are they can wait, they can gift part of their estate to their children, and they have to wait seven years.
• 4:21
  SPEAKER_00: Um uh otherwise there's the the inheritance tax liability is still there.
• 4:25
  SPEAKER_00: They can invest in shares that qualify for business property relief or agricultural relief, but you still have to survive two years.
• 4:32
  SPEAKER_00: And I started looking, it's one of the first things I did at Foresights, is started looking at this with completely fresh, fresh perspective and thought, well, two years is still, you know, if you're an 80-year-old, it's still a long time to survive.
• 4:44
  SPEAKER_00: Why can't we have a solution that works immediately and instantly?
• 4:47
  SPEAKER_00: And so I just had an idea of, okay, well, why don't we take out a life insurance policy in the name of the investor?
• 4:54
  SPEAKER_00: And if they don't survive for that first two-year period, then the life insurance policy covers the 40% inheritance tax liability.
• 5:02
  SPEAKER_00: So I had the idea.
• 5:03
  SPEAKER_00: I went to the uh Lloyd's of London and found a broker.
• 5:07
  SPEAKER_00: And within, I think it was within 12 weeks, we'd gone from idea to launching what became known as the accelerated inheritance tax solution.
• 5:16
  SPEAKER_00: Um, and trained the sales force and you know, pulled together all parts of the business.
• 5:21
  SPEAKER_00: And we launched it, and we, I think, quadrupled our fund market raising, fund, yeah, our fundraising market share with it within a year into that, into that product.
• 5:30
  SPEAKER_00: So that just to give you a sense of just how how quickly we could move from idea to making something happen.
• 5:36
  SPEAKER_00: And that was it's really part of Foresight's ethos.
• 5:39
  SPEAKER_02: That's what I was gonna ask.
• 5:40
  SPEAKER_02: Is is that the culture of the business that makes that possible?
• 5:42
  SPEAKER_00: It yeah, the ideas and entrepreneurism are really encouraged.
• 5:46
  SPEAKER_00: And ideas are given, they're put up on a pedestal, and no idea is a bad idea.
• 5:52
  SPEAKER_00: Having an idea is is a good thing.
• 5:54
  SPEAKER_00: Um, and then we've kind of formed this process around how do you take that idea and test it?
• 5:59
  SPEAKER_00: You know, and what you what you want to get to is within a few weeks, is this an idea that we're really going to rally around and create a whole initiative around, or yeah, it was a good idea, but probably not for us.
• 6:10
  SPEAKER_00: You know, you're trying to trying to force the decision one way or the other.
• 6:13
  SPEAKER_00: And so that's that kind of like innovation lab.
• 6:15
  SPEAKER_01: Um what was quite helpful about the structure and kind of the origins of our natural capital piece was that, you know, I'm working in a bioenergy, renewable energy infrastructure team, busy working on deals, investments, portfolio managements, exits, you know, you kind of head head down, uh, you've got your business strategy you're working in.
• 6:36
  SPEAKER_01: And it's quite hard if you're in that, you've got existing clients and stuff like that to look for a new product, to find the headspace and the time.
• 6:45
  SPEAKER_01: So it was really helpful to have riches sort of, and I think there was probably two or three people, rich and two others, who were kind of doing the macroeconomic, the background, the supply and demand dynamics, the kind of does this sort of from a macro perspective, does it actually make sense?
• 7:01
  SPEAKER_01: Is it a good market to be in all the data analysis, looking at the indexes, kind of working out the the opportunity, the gap in the market?
• 7:11
  SPEAKER_01: And then once that had kind of passed, it seems to make sense on paper and kind of with the macro picture, it's trying to bolt that into well, we've got investment experience.
• 7:23
  SPEAKER_01: Can the investment team and asset management team actually execute on this?
• 7:29
  SPEAKER_01: So, what's in the toolkit within the team?
• 7:32
  SPEAKER_01: And that's where kind of we realized that I had a skill set that was very complementary but different to Richard's skill set.
• 7:39
  SPEAKER_01: It was kind of phase two was okay, well, how do we how do we build a model to value uh a farm that's going to become a forest, or how do you value an existing forest?
• 7:50
  SPEAKER_01: So we then started building relationships with forest managers, uh advisors, estate agents, the rural world, the forestry world, finding out who's who, how are they valuing it, all of that kind of stuff, which I think was probably more the kind of real assets infrastructure team skill set, but very complementary.
• 8:10
  SPEAKER_01: So that really helped us to kind of then start working together.
• 8:14
  SPEAKER_01: And as that became, it became very clear that it was doable, scalable.
• 8:18
  SPEAKER_01: We had the experience of development, we had the experience of managing assets, we had an Edinburgh office, quite a lot of opportunity in Scotland.
• 8:25
  SPEAKER_01: So a lot of that all kind of came together to the extent that eventually I ended up sort of kind of slowly migrating and closing out my bioenergy work, uh, making sure that was properly handed over to the right team.
• 8:39
  SPEAKER_01: And then we kind of basically formed the forestry team, natural capital team at the time.
• 8:44
  SPEAKER_01: And I think the main thing is we're having it was quite nimble.
• 8:48
  SPEAKER_01: You know, once Foresight got behind us and the senior management had got behind us, we had the mandate um to do it.
• 8:55
  SPEAKER_01: And it went pretty quickly after that.
• 8:57
  SPEAKER_01: I mean, it took to get you don't want to run into a market and go too fast, you need to find out where the bite point is.
• 9:03
  SPEAKER_01: And there was quite a lot of kind of we bid on quite a lot of stuff before we made our first investment.
• 9:08
  SPEAKER_01: But I think the main thing was it was really exciting and it was fun, you know, and we we get on well, um, Richard and I, and we we formed a little team around us.
• 9:18
  SPEAKER_01: And you know, I was I was enjoying it, and I think Rich was too.
• 9:21
  SPEAKER_01: And it's very exciting to be part of like a new uh part of a business, quite risky.
• 9:26
  SPEAKER_01: You know, your colleagues are saying, Oh, you've kind of broken cover and gone for this forestry natural capital stuff, you know.
• 9:33
  SPEAKER_01: What's the dividend yield on that?
• 9:34
  SPEAKER_01: You know, does it have any income?
• 9:36
  SPEAKER_01: And you know, you've taken a risk, you know, and then you work in the clock forward, and we did the IPO, and they're like, Oh, I didn't realize you guys had built up a£150 million portfolio in 12 months, and uh it was it was super exciting, and uh and and foresight kind of behind you saying, right, we've all bought into this now, we're not gonna wait for five years, you've kind of got to do some stuff.
• 9:59
  SPEAKER_01: You've probably got 18 months to start kind of getting stuff off the ground.
• 10:03
  SPEAKER_02: And and we didn't was it um for you, Richard?
• 10:05
  SPEAKER_02: Was it a big decision point from going from sitting in the ideation part of things where it's like, look, I get because clearly your brain pops with ideas all the time, and you're like, could we do this, this, this, and this?
• 10:16
  SPEAKER_02: Was it a big step to go actually this is the one I'm gonna choose?
• 10:20
  SPEAKER_00: And yeah, I mean, I worked on lots of different ideas and launched several new funds, but always sort of handed over the baby and you know, you know, recruited a team, and then that was for them to go and go and run.
• 10:33
  SPEAKER_00: For me, this was this was the one I wanted to.
• 10:37
  SPEAKER_00: I just there was something about um this one I did I couldn't let go of.
• 10:42
  SPEAKER_00: Um and yeah, I actually I actually um effectively resigned from my previous role in in the run-up to the IPO.
• 10:50
  SPEAKER_00: It was clear I you can't run an IPO and also also run a department that's coming up with the you know other other new ideas.
• 10:59
  SPEAKER_00: And so I've essentially resigned from the head of product development role and you know, went all in on forestry, and that was in the run-up to the IPO.
• 11:08
  SPEAKER_00: So there's quite a lot of pressure on the IPO being a success.
• 11:11
  SPEAKER_00: Um, otherwise you're kind of head of head of what um you know, co-lead of of what.
• 11:16
  SPEAKER_00: So yeah, I I sort of did formally resign from that um new product development role and kind of went two feet all in on uh internatural capital.
• 11:25
  SPEAKER_00: Um so yeah, it was a it was it was certainly a leap of faith at that point.
• 11:29
  SPEAKER_02: I I always whenever you guys start telling some stories, I um I don't think you get the credit or the the the milestones you achieve before other people, I don't think I recognize quite enough because you you almost did them quietly and just like built 150 million portfolio in 12 months and then did an IPO and now the rest of us are coming into the space looking and going, oh Christ, they did all this stuff already.
• 11:52
  SPEAKER_02: So um slow us down a little bit in terms of the progression from so you guys come together, you've got the idea, you start looking at things in terms of in fact, let's go to the modelling first.
• 12:01
  SPEAKER_02: You said about engaging with the right foresters and land aids and experts to do that.
• 12:05
  SPEAKER_02: When you're thinking about developing that that new product to the modelling, when do you know we can do this and we've got it?
• 12:11
  SPEAKER_02: And when do you know I need the expert or the consultant, or how do you make that decision?
• 12:16
  SPEAKER_01: I think we know how to value stuff, we understand um cash flow valuations and comparables.
• 12:25
  SPEAKER_01: And I worked in corporate finance before, so malt using multiples, you know, we're we're quite across kind of technical.
• 12:33
  SPEAKER_01: And within Foresight, we know how to value a private equity venture capital businesses as well.
• 12:38
  SPEAKER_01: Um infrastructure.
• 12:40
  SPEAKER_01: I think the big difference with natural capital is infrastructure is um it's all about the first 15, 20 years of cash flows, and normally it's a wasting asset, i.e., it's a depreciating asset.
• 12:57
  SPEAKER_01: Um whereas with natural capital, the way we're doing it, and similar model to you guys, mainly, is you know, buying the freehold.
• 13:05
  SPEAKER_01: And there's a lot of capital tied up in that, which means the yield is much lower, but it's an evergreen asset.
• 13:12
  SPEAKER_01: It's it's sort of if it's not being harvested, if it's a forest or whatever, it's appreciating and biologically growing.
• 13:19
  SPEAKER_01: And then you've got this huge at the end of the cash flow, you've got this huge sort of terminal value, this perpetual value.
• 13:26
  SPEAKER_01: And I think that was the biggest challenge was how do how do others do it?
• 13:31
  SPEAKER_01: How far out should we go?
• 13:33
  SPEAKER_01: Should we should a forest be a hundred years?
• 13:36
  SPEAKER_01: Should it be 20 years?
• 13:38
  SPEAKER_01: And it's very sensitive to the terminal value and the closing value, which kind of ties back to the comparables market because land is a bit like gold to some extent, particularly given that um it's not a sort of super high yield, and you've got this capital growth and total uh total return type approach.
• 13:58
  SPEAKER_01: So it did take a while to kind of marry up what we understood around infrastructure investing and venture capital and growth capital, which were already really in the wheelhouse for foresight, moving into kind of that real estate land ownership.
• 14:11
  SPEAKER_01: Um, and so we did speak to lots of agents, looked at the Red Book valuation process, the RICS Institute of Chartered Surveyors process, trying to understand how the agents and experts in the market were looking at it, and I guess bringing some of our discounted cash flow and sort of hybridizing the bet the best of both and getting comfortable.
• 14:33
  SPEAKER_01: And it's about how you set your sort of your yardstick, your benchmark.
• 14:37
  SPEAKER_01: And it took us quite a while to work out what the kind of risk profile, what our cost of capital was.
• 14:45
  SPEAKER_02: Um during that sort of uh learning phase, can you remember any aspects where you were like, wow, we got that wrong.
• 14:52
  SPEAKER_02: We we didn't know that that was a massive surprise.
• 14:54
  SPEAKER_00: Was there anything that totally I mean it's been a lot of learning, particularly on the kind of technical, I mean, neither of us are foresters.
• 15:03
  SPEAKER_00: Um so we do um we now have you know qualified foresters in the team, but when we started out, we didn't.
• 15:10
  SPEAKER_00: And so we were reliant on um, you know, third-party advisors, you know, civicultural experts who would who would provide advice.
• 15:19
  SPEAKER_00: But there's been a huge amount of learning about different species and you know, harvesting regimes, and um I think yeah, we've you know, we've certainly in in the early days we were undervaluing, you know, we were putting bids out there and we were we were way off the off the pace to begin with.
• 15:36
  SPEAKER_00: And it's sort of like, okay, each you know, failed bid, what did we miss there?
• 15:41
  SPEAKER_00: What didn't we get right?
• 15:42
  SPEAKER_00: And oh, it's oh we didn't realise you could you could you could actually harvest this particular species 10 years earlier.
• 15:49
  SPEAKER_02: Or we we've seen in person more than 120 estates to buy 12.
• 15:55
  SPEAKER_02: Yeah.
• 15:56
  SPEAKER_02: Because each time we were calibrating our model, what can we learn, what can we add to it, what can we tweak, what can we adjust?
• 16:01
  SPEAKER_00: So so we've got nearly a hundred assets in the portfolio, probably all on average smaller.
• 16:06
  SPEAKER_00: And so we've probably seen multiple hundreds of deals.
• 16:11
  SPEAKER_00: Um and so it's it for us, it's we've got to very quickly get to a sense of is this an opportunity or not?
• 16:20
  SPEAKER_00: You know, we and we've got to kind of do that on the desktop.
• 16:22
  SPEAKER_00: Um, and so we spent quite a lot of time developing this screening criteria, and we've got this, we've sort of developed these map-based criteria and we've overlaid multiple layers and we've identified specific parcels of land across the UK, and we've developed this essentially proprietary database of specific properties that we know on paper will be great for afforestation.
• 16:49
  SPEAKER_00: And so we spend quite a lot of time up front doing that.
• 16:52
  SPEAKER_00: And so now when a property comes on the market, we can immediately say, Is it on our list?
• 16:56
  SPEAKER_00: Yes, right, let's go for it.
• 16:58
  SPEAKER_00: So we've got we've got that instant decision making now.
• 17:01
  SPEAKER_00: And the other element is that we, with that database, we really focus on off-market um uh origination.
• 17:10
  SPEAKER_00: So directly approaching landowners from that list.
• 17:13
  SPEAKER_00: Um, and that and that's been working really well for us.
• 17:16
  SPEAKER_00: It means you know, we can have a one-to-one conversation, chances of success are much higher.
• 17:21
  SPEAKER_00: Whereas if we're in an auction, you know, best case, you've got a one in five chance, one in ten chance.
• 17:26
  SPEAKER_00: You've got to do all the same amount of effort, but your probability of success is so much lower.
• 17:31
  SPEAKER_00: Whereas if you go off market and have a one-to-one conversation, there's maybe a one in three, one in four chance.
• 17:36
  SPEAKER_00: So that's that's been really um something that we've learned as is working much better for us.
• 17:41
  SPEAKER_02: My my biggest learning is um, so um do any of your assets have the built property components with them as well, still?
• 17:49
  SPEAKER_02: So houses, buildings, tenants, and things?
• 17:51
  SPEAKER_00: Yeah, I mean, uh our largest property, 40 estate, has um pretty extensive property as well.
• 17:57
  SPEAKER_00: I mean, if we want to give a overview of it.
• 18:00
  SPEAKER_01: Yeah, we I mean we bought um 40 estate, um, it's got a lovely lodge and some cottages next to it.
• 18:08
  SPEAKER_01: It's got uh what used to be the factors' house, it's got a keeper's house, and then it had another sort of quite nice six-bedroom house.
• 18:16
  SPEAKER_01: And we've we've since sold um conifera, um, but we've kept everything else, and then we've got a sort of letting business.
• 18:26
  SPEAKER_01: Um, so there's a local business next door to and you you know the area.
• 18:30
  SPEAKER_02: We've got the neighbouring estate.
• 18:32
  SPEAKER_01: You've got to do it.
• 18:32
  SPEAKER_01: Yeah, so you've got Invergeldi next door.
• 18:34
  SPEAKER_01: Um, and the other side of 40 is Conroe Croft, and uh the owner of that is rent and his family are renting the fact what was the factors house, uh Andrew.
• 18:44
  SPEAKER_01: And um, and and then we've got the keeper in one house, but then you've got the hub, which is the lodge, with three kind of cottages that bolt on, and they let really well, partly because Conrie Croft's a very popular kind of tourist destination for people coming in for everything from a wedding down to coming for a weekend of mountain biking and and doing the cool stuff there, and so we get quite a lot of the um you know, passing trade from that and Comrie and Creef, and it's a great holiday area, and you've got Loch Earn up the road, and so that hub in the middle um does let well now, and we've kind of opened it up, properly opened it up before it was kind of more private use.
• 19:24
  SPEAKER_01: It was let a little bit, but not really.
• 19:26
  SPEAKER_01: So we've really kind of got that going, and it kind of provides that income stream, that base income stream.
• 19:32
  SPEAKER_01: I wouldn't say it's high, you know, real estate and commercial letting it's quite hard to make a kind of real big return off it, but it provides it, it's cash positive now, it's stable, and then it gives us some stuff and it gives us some connection to the community, and that kind of makes it a proper working estate.
• 19:53
  SPEAKER_01: Um, and we get so much benefits from that from having people working and living at the bottom of the estate, and then suddenly that opens up, you know, connections to community.
• 20:04
  SPEAKER_01: So it's worth it.
• 20:06
  SPEAKER_01: And then in other scenarios, we we find we buy a farm and it's got a farmhouse that's better off going back into the residential market with a little bit of the best farmland, and then we'll plant up the forestry bit.
• 20:19
  SPEAKER_01: And it doesn't make sense to keep them together, but but but where it does make sense to keep them together, it's actually a real asset and a real opportunity.
• 20:25
  SPEAKER_00: I'd say we're we're mostly focused on trying to find pure land.
• 20:30
  SPEAKER_00: Um, we'll we'll buy the farmhouse and steadings if it comes with the property, but generally we'll look to sort of flip um, keep it for a year or two and then flip it on and then retain a kind of a more concentrated parcel of land that that can be planted.
• 20:44
  SPEAKER_00: Um but yeah, the there's a couple of exceptions which are our bigger assets where you've got that landscape scale um asset with you know a collection of properties and a whole ecotourism business attached.
• 20:54
  SPEAKER_01: I saw I saw it.
• 20:56
  SPEAKER_01: You guys just got uh the permission through on Invergeldia saw an announcement about that.
• 21:01
  SPEAKER_01: It's brilliant.
• 21:02
  SPEAKER_01: We do, thank you very much.
• 21:03
  SPEAKER_01: So yeah, we've got a few trees going in there.
• 21:05
  SPEAKER_02: 1.3 million trees going in, yeah, which is super, super exciting.
• 21:08
  SPEAKER_02: Um, Chris and the team have done an incredible job up there.
• 21:11
  SPEAKER_02: But the bit I'm most proud about that project is we had um Scottish Forestry literally write to us praising the the quality and the the range of community consultation with it.
• 21:22
  SPEAKER_02: So that was I mean, you can never make everybody happy, but you can listen to everyone and try and factor everything in.
• 21:27
  SPEAKER_02: And we've just got a quote back saying how extensive and well considered the community and social benefits package was.
• 21:33
  SPEAKER_02: So, you know, the the environmental impact bit is almost easier because there's a logical land use of what's there, whereas trying to balance all the different local perspectives is hard.
• 21:44
  SPEAKER_02: I mean, you guys have done that wonderfully well.
• 21:47
  SPEAKER_02: Um we've talked about social license before and how important that is.
• 21:51
  SPEAKER_02: Do you want to talk to that a little?
• 21:53
  SPEAKER_00: Yeah, I mean, I think um we we recognized quite early on, and I think it was one of our early learnings.
• 22:00
  SPEAKER_00: Was that you know you can do sort of sporadic one-off afforestation schemes and you know just trying to ram through as much kind of sitka as what you can do that as sort of sporadically, but to do um the kind of afforestation on the scale that we're looking to do across the UK, you you have to actually work with communities and you've got to completely embed your approach with them, and it's it's it's it's what doing the change with the community rather than you know imposing it upon them.
• 22:35
  SPEAKER_00: And so we've focused on um skills training.
• 22:39
  SPEAKER_00: Um, you know, so we recognise that when farms are taken out of you know traditional sheep farming and and grazing uh and they're converted into forestry, that changes, you know, the local jobs, jobs market, and there's a transition, and that can be difficult.
• 22:55
  SPEAKER_00: Um, and so we've we've focused on investing in in people.
• 22:58
  SPEAKER_00: So we run a skills training program, we've run it for uh several years now, and we're taking young farmers um and we're putting them through three weeks of uh intensive training.
• 23:10
  SPEAKER_00: It's fully funded, there's compensation for loss of earnings, so it's inclusive.
• 23:15
  SPEAKER_00: And at the end of this kind of three-week training program, these young people have all of the skills, training, and tickets that they need to then start a new career in forestry.
• 23:24
  SPEAKER_00: And then we're offering these these graduates, you know, paid employment on on our on our portfolio.
• 23:30
  SPEAKER_00: Um, so that's been that's been a really important element um to kind of in you know, part of the just transition, in enabling communities to to move their careers with with the change in in rural communities.
• 23:43
  SPEAKER_00: And then I think the other thing is is similar to what you guys have have done at uh in Vigeldi, it's about how you engage and listen to communities.
• 23:52
  SPEAKER_00: So we as standard for every scheme, we have a you know an open door policy.
• 23:57
  SPEAKER_00: So we you know run a uh a day where all of our plans are laid out in a you know in a town hall or a a church hall, and and we're we're there to listen to the feedback.
• 24:08
  SPEAKER_00: And where the feedback is valid, and um you know these local people have all sorts of ideas, weird and wonderful, and we have a whole portfolio of initiatives now, and they range from um mountain biking trails, uh they wrote car parks um that are to encourage ecotourism, um, wooden benches that have been put through, um, land swaps, um rewilding schemes, um and and community community um leases.
• 24:41
  SPEAKER_00: There's there's a whole you know wide array of the of these things.
• 24:44
  SPEAKER_00: And I think I think I think that's it's really important to to work with communities because it's the community is the difference between doing this sporadically and doing it at the sort of scale that we that we need.
• 24:58
  SPEAKER_02: I agree.
• 24:59
  SPEAKER_02: When um so from from concept, you're starting to acquire, did you always have the plan that you would seek the IPO as quickly as you did?
• 25:11
  SPEAKER_00: I think we didn't start out thinking, oh, right, from the get-go, let's IPO.
• 25:16
  SPEAKER_00: We started investing with um Foresight's inheritance tax uh fund.
• 25:23
  SPEAKER_00: Um we quite quickly you know built up a portfolio of£150 million worth of assets.
• 25:29
  SPEAKER_00: At the time, that was about the maximum allocation that that fund wanted to any one asset class.
• 25:35
  SPEAKER_02: So we'd kind of hit the how many individual projects would you have had at that point?
• 25:39
  SPEAKER_00: It would have been over 50.
• 25:42
  SPEAKER_02: That's so fast, guys.
• 25:44
  SPEAKER_00: It's really impressive.
• 25:45
  SPEAKER_00: Yeah, but approaching 50.
• 25:47
  SPEAKER_00: Um and we then started to think, okay, well, there's lots of opportunity out here.
• 25:53
  SPEAKER_00: Again, capital is the constraint now.
• 25:57
  SPEAKER_00: How can we really scale this?
• 25:59
  SPEAKER_00: And we started looking at you know, different, you know, you could do the traditional 10-year fund, uh like a private LPGP fund.
• 26:07
  SPEAKER_00: But we're looking at the market and sort of saw, well, there's this obvious gap that if you're you're an investor and you want, you know, listed exposure to natural capital, there's literally no way you can get that.
• 26:20
  SPEAKER_00: And so we saw an opportunity to l list uh an investment trust on the London Stock Exchange.
• 26:28
  SPEAKER_00: The portfolio would be like illiquid forest and afforestation schemes, but the shares trade intraday on the on the LSE.
• 26:37
  SPEAKER_00: Um, and we were we would be it would be the first listed natural capital company on the on the LSE.
• 26:42
  SPEAKER_00: And so that was the idea, and we started testing it.
• 26:45
  SPEAKER_02: When you first voice that idea, what was the immediate reaction?
• 26:50
  SPEAKER_00: There were there had been a couple of previously failed um IPOs um uh in in other jurisdictions, like maybe a decade or two decades previously.
• 27:02
  SPEAKER_00: And so there was like, oh right, it you know, it does forestry in a listed format work?
• 27:06
  SPEAKER_00: There was there were some concerns from the old guard who had been back there, who had, you know, got those those those scars.
• 27:14
  SPEAKER_00: Um but it was yeah, it was it was different, and it was it was really exciting to try and do this like this is this is a first, this is really exciting.
• 27:24
  SPEAKER_00: And we pitched it to um to do an IPO, you need an you know investment bank, a broker.
• 27:30
  SPEAKER_00: And we found um, yeah, uh a broker, uh Jeffries, uh and a and a particular individual there who you know absolutely saw, you know, shared our vision, and together we we made it happen.
• 27:43
  SPEAKER_00: Um and yeah, it was it was an amazing, amazing moment.
• 27:47
  SPEAKER_00: Um hardest thing I've ever done, um, most stressful thing for sure.
• 27:52
  SPEAKER_00: Um, but yeah, it was an amazing moment to get there.
• 27:56
  SPEAKER_02: To bring us out of that IPO and take us from there to where we are now.
• 28:01
  SPEAKER_01: So yeah, so we lit we we listed um what year was that?
• 28:07
  SPEAKER_01: 2021, November 21.
• 28:10
  SPEAKER_01: Um one thing that we were really proud of in particular, or I was, and I agree with Rich, it was was the hardest deal I've ever done.
• 28:18
  SPEAKER_02: Um and for a bunch of doubt, everybody says that right.
• 28:21
  SPEAKER_02: Everybody says so um I was at an event with you guys a few a few months ago.
• 28:25
  SPEAKER_02: You you asked us to come and and speak with you, and um uh and I'd mentioned various people had approached us and said, Okay, guys, you should think about this IPO.
• 28:34
  SPEAKER_02: And everyone else in that room went, it's really hard.
• 28:37
  SPEAKER_02: So yes, everyone says that.
• 28:40
  SPEAKER_01: There's a story about the the the last night at the IPO, which is probably uh probably one for for the pub.
• 28:46
  SPEAKER_01: But um we one thing that was great was we were raising during COP26 in Glasgow.
• 28:53
  SPEAKER_01: And when we decided to become a premium segment uh on on the LSE, um that allowed us to market properly to retail.
• 29:03
  SPEAKER_02: What does being a premium segment mean?
• 29:05
  SPEAKER_01: It means that rather than being um, so there's there was specialist fund segment, there's the alternative investment market, and then there's main market.
• 29:15
  SPEAKER_01: And main market means you can market it more widely to retail, it's more regulated.
• 29:21
  SPEAKER_01: Um, the cost of that was that we couldn't offer business relief and inheritance tax protection in the main market premium segment.
• 29:29
  SPEAKER_01: And the analysis was advised by the brokers was if people want access to inheritance tax from forestry and natural capital and land investment, there's plenty of product out there.
• 29:40
  SPEAKER_01: Let's make this different such that if it scales, multi-assets will come into it.
• 29:45
  SPEAKER_01: And they're quite like the main markets, more regulated strict.
• 29:48
  SPEAKER_01: So we were able to then say, well, actually, we can also offer out and out retail.
• 29:53
  SPEAKER_01: We can market to retail investors.
• 29:56
  SPEAKER_01: And we were expecting about 5 million in 130 million to come from retail investors, and we were overwhelmed, uh, because I think partly because of COP26, and we were, I guess, impact in ESG was the anti-woke, anti-SG thing hadn't really kicked in.
• 30:12
  SPEAKER_01: People were kind of quite keen on uh net zero and it was a bit more a la mode.
• 30:18
  SPEAKER_01: And we took 19 million, um, or or there or thereabouts, 15 to 20 million, that kind of order.
• 30:24
  SPEAKER_01: So it was three or four times as much as we were expecting.
• 30:27
  SPEAKER_01: And I think that that for me was the most exciting thing was that it showed that retail investors do engage with the message natural capital sustainable investment.
• 30:40
  SPEAKER_01: So that that for me was really proud.
• 30:41
  SPEAKER_01: But we we we roll forward from that.
• 30:44
  SPEAKER_02: We we're gonna get there again, aren't we?
• 30:46
  SPEAKER_02: For like so uh again, just from the wider sector, thank you for going through all those curves and things because um every time I get to sit down with you guys or Natagal or all the people who've who've put a stake in the ground at various points, Gresham as well.
• 31:03
  SPEAKER_02: Like, if it isn't for these achievements, the whole sector hasn't moved forward.
• 31:07
  SPEAKER_02: So each of us will make a little bit of ground somewhere, but collectively we're making a lot.
• 31:11
  SPEAKER_02: There will be multiple significant multi-billion pound funds that retail investors can access in one, two, five, ten years, whatever that time domain looks like.
• 31:22
  SPEAKER_02: We will get there again, but they wouldn't have happened without you guys going first.
• 31:25
  SPEAKER_01: I I think, I think, you know, we we were able to then bounce off that and we did another um tap issuance of 45 million in, I think it was June 2022, uh spring 2022.
• 31:40
  SPEAKER_01: Um, so that took us to 175 million.
• 31:42
  SPEAKER_01: We put a revolving credit of 30 million in in place.
• 31:45
  SPEAKER_01: So we're starting to get through the 200 million pounds of gross asset values, scale, planting trees, really pivoting towards afforestation and carbon credits.
• 31:55
  SPEAKER_01: We'd already built the kind of base um portfolio, which is mainly mature assets to provide some cash yield.
• 32:01
  SPEAKER_01: So we had a pretty good platform.
• 32:03
  SPEAKER_01: Um we focused on A4.
• 32:05
  SPEAKER_02: Is super important in the asset class.
• 32:07
  SPEAKER_02: So we had Martin Berg on a few a few weeks ago, and his thing was that period of waiting is the thing that kills you in this asset class.
• 32:15
  SPEAKER_02: You have to accelerate into things that can be yielding really early.
• 32:18
  SPEAKER_02: So the fact you're able to bring in those mature assets as well, I think was so.
• 32:24
  SPEAKER_01: After the IPO, within three months, we'd bought£120 million worth of seed assets.
• 32:29
  SPEAKER_01: So we'd pretty much deployed the money within three months, and that allowed us to come back and tap the market again.
• 32:34
  SPEAKER_02: And how did that entire pipeline based on your modeling targeted already?
• 32:38
  SPEAKER_02: You knew what you were gonna go get.
• 32:40
  SPEAKER_01: Yeah, I mean we we we definitely knew the assets that were were in the other fund.
• 32:45
  SPEAKER_01: It what was complex was navigating, it needs to be an arm's length deal.
• 32:50
  SPEAKER_01: We've got a board of directors and a listed company, and then we've got a board of directors from uh a£2 billion uh inheritance tax solution fund.
• 32:59
  SPEAKER_01: So it was agreeing on price and making sure that it was arm's length.
• 33:04
  SPEAKER_01: It was kind of slightly more complicated, but actually the deal was once you handshake on price, willing buyer, willing seller, everybody wants to get it done.
• 33:14
  SPEAKER_01: The the inheritance tax fund was an investor as well.
• 33:17
  SPEAKER_01: So there's a lot of synergy, and in effect, it was sort of a cash and shares deal in some respects.
• 33:23
  SPEAKER_01: Um, but having that pipeline was was really important.
• 33:26
  SPEAKER_01: And then we immediately had some income from the timber harvesting to kind of grease the wheels of the development model.
• 33:32
  SPEAKER_01: Um, if you look at then kind of markets, and it's all about time, and you're talking about kind of the next five, 10 years.
• 33:39
  SPEAKER_01: I agree with you.
• 33:40
  SPEAKER_01: I think we will see more uh natural capital on the market, on the listed market at the right time, but there's a time and a place for alternatives to be on the stock market, and at the moment, with the interest rate shock, and I think that's what affected us.
• 33:56
  SPEAKER_01: We were delivering the nav growth, we were planting the trees, we were on program, we were, we had the cash flow sorted out, the board were very happy with the performance.
• 34:06
  SPEAKER_01: Shareholders, in terms of the operational aspects of things, seemed to be responding well to what we were doing.
• 34:12
  SPEAKER_01: Um, I think what was challenging was that interest rate shock just made investment trusts very challenging and liquidity fell away, and people thought I'd like to be in guilt or yielding assets.
• 34:25
  SPEAKER_01: And it's still going on.
• 34:27
  SPEAKER_01: You know, investment trusts are still having a tricky time and trading at entrenched discounts.
• 34:32
  SPEAKER_01: So we we kept operationally performing the business, but from a trading perspective, we had a discount to our nav, which meant we couldn't raise more money.
• 34:43
  SPEAKER_01: And that was immensely frustrating because you're doing everything right, but you can't raise more money to keep growing the business.
• 34:49
  SPEAKER_02: So eventually we and there's so few tools at your disposal at that point, right?
• 34:53
  SPEAKER_02: Because macro headwinds are going a completely different way.
• 34:57
  SPEAKER_00: Yeah, and we you know we kept pushing out you know, good news, positive news.
• 35:02
  SPEAKER_00: Here's another asset, another planted, here's another nav uptick.
• 35:06
  SPEAKER_00: But you're pushing against macroeconomic conditions that are far bigger than one, you know, one small listed company.
• 35:12
  SPEAKER_00: Um and yeah, there was just a a huge trade of you know, sell listed alternatives, buy bonds.
• 35:20
  SPEAKER_00: And it that trade is is indiscriminate.
• 35:23
  SPEAKER_00: It's just you know, it's it's you know, fund managers across the city and ETFs, you know, just reallocating into into bonds.
• 35:31
  SPEAKER_00: Because suddenly you could get 5% from GILT risk-free.
• 35:35
  SPEAKER_00: And so that makes you know listed um alternatives, you know, particularly sort of infrastructure and renewables, suddenly what's the what's the premium um that you need above the risk-free rate?
• 35:47
  SPEAKER_00: And so it's just it's it's just kind of natural economics.
• 35:50
  SPEAKER_00: And that that trade has is continued, and those and those um discounts have, you know, they continue to today.
• 35:56
  SPEAKER_00: You know, I think the whole sector listed is around about 30% discounts to to NAV.
• 36:01
  SPEAKER_00: So it's it's still very difficult conditions.
• 36:04
  SPEAKER_01: I think it's it's um it's a valuation issue, and it's is is the market price of a listed investment trust, is that the real value of the assets?
• 36:16
  SPEAKER_01: And the true test of that is you know what's happening in the investment trust space and then listed space is there's either mergers going on and people are saying, well, if we're synergistic, we should merge to get scale, because with scale comes liquidity, or people are doing take privates and schemes of arrangements, and it's when you get the offer uh to take private, that's when you know what your your assets are really worth.
• 36:41
  SPEAKER_01: And you know, we did a take private, uh a five percent discount to the nav.
• 36:46
  SPEAKER_01: Share price was saying it was sort of 35% discount.
• 36:51
  SPEAKER_01: So the market is arguably mispricing the asset because they're desperate for liquidity.
• 36:57
  SPEAKER_01: Um, and so I think it's about being entrepreneurial and nimble, and I think that's navigating getting off the market, allowing those people who did want out to get out at a reasonable price given the trading conditions, and then building back.
• 37:14
  SPEAKER_01: And I think that that's kind of where I think foresight and the kind of entrepreneurial aspect kicks in, is we didn't just sit there and we had a board that were really live to looking after shareholders, making sure that the assets could perform and trying to get the best value for that.
• 37:31
  SPEAKER_01: And I think we navigated our way through rather than just sitting on our hands waiting for uh trading conditions to to kind of really slow us down.
• 37:40
  SPEAKER_01: We were fortunate that we were able to do uh, in a difficult situation, a take private, and now we're building back from that, and we've still got the platform and the performance is still there.
• 37:51
  SPEAKER_01: So we managed to sort of get on the market, super exciting, grew really quickly on the market, and then trading conditions created a massive headwind, but it was relatively quick for us to get back off, and now we're kind of re we've rebuilt it and we're kind of back to fundraising again.
• 38:08
  SPEAKER_01: Um, so it's not throwing the towel in is really and being nimble and entrepreneurial is really important.
• 38:14
  SPEAKER_01: And I think that doesn't mean that we think going back on the market is a that's that's an option.
• 38:21
  SPEAKER_01: It's just timing, it's what feels right, it's about the advice.
• 38:24
  SPEAKER_01: Because if you can get on the market and the conditions are behind you, you can scale three or four times faster than than in private market conditions in the right uh listed market.
• 38:33
  SPEAKER_01: So we we don't rule it out.
• 38:35
  SPEAKER_01: We always think about it, okay.
• 38:36
  SPEAKER_01: That's one of the tools in the box, being listed or being private.
• 38:39
  SPEAKER_01: You you can do both, and and we've navigated that.
• 38:42
  SPEAKER_01: So we see that as a kind of skill set that we could tap into later.
• 38:46
  SPEAKER_00: Idea of doing another IPO.
• 38:51
  unknown: Yeah.
• 38:52
  SPEAKER_02: We had that Ian Sims from Impacts on the podcast a couple of months ago as well.
• 38:57
  SPEAKER_02: And he talked about the arc of growing to I can't remember the specific numbers, but let's say 50, huge, huge number of billions, and then experiencing similar market conditions and a significant drop for them, and then a rebound effect.
• 39:11
  SPEAKER_02: What you guys articulated there was beautifully logical and measured, and how you'd hope any professional manager would deal with that.
• 39:19
  SPEAKER_02: How did you process that emotionally?
• 39:21
  SPEAKER_02: Because you guys are doing an awesome job.
• 39:23
  SPEAKER_02: You've built something and beyond your control, you're getting hammered by changes out there.
• 39:29
  SPEAKER_02: How did you, for people who are going to be sat in that situation?
• 39:32
  SPEAKER_02: Actually, I'm just asking for me when I get there, how did you emotionally process that?
• 39:35
  SPEAKER_02: Because it's not fair.
• 39:36
  SPEAKER_02: What was happening was really challenging.
• 39:39
  SPEAKER_02: You had so few tools.
• 39:42
  SPEAKER_00: It was, it was difficult.
• 39:43
  SPEAKER_00: It was, it was, you know, in that the sort of last year of listed life, it was this kind of realization, oh, we're we're sort of being listed, we're stuck.
• 39:53
  SPEAKER_00: We're we're subscale for listed markets, and with the share price the way it is, there's no ability to to grow.
• 40:01
  SPEAKER_00: So you're kind of in this stuck situation.
• 40:03
  SPEAKER_00: And yeah, emotionally it was it was difficult because we put put absolutely everything into the IPO, into making making that happen.
• 40:14
  SPEAKER_00: Um, so yeah, it was it was hard.
• 40:17
  SPEAKER_00: It was, yeah, and then the delisting happens, and it's sort of like, okay, we're on a we're on a different tack now.
• 40:25
  SPEAKER_00: Um, but I'm I'm I'm actually I'm actually really I mean I'm really glad the way things have panned out because we delisted and it was within a f a handful of months that um you know our our three of our biggest shareholders rolled their listed shareholding into the into the private company, Foresight Natural Capital.
• 40:46
  SPEAKER_00: And yeah, within literally a few months, those invested has re-up.
• 40:50
  SPEAKER_02: Um which is an incredible endorsement of you guys personally, say, look, yeah, we want to stay with you, we want to keep going.
• 40:56
  SPEAKER_00: Yeah, and we would you know we were delighted with that, and it that gave us, you know, real it was a real yeah, that was it that was really helpful.
• 41:05
  SPEAKER_00: Um, that okay, we can we can make this work as a you know, and be as successful or more successful um as a private company than had we stayed in listed markets.
• 41:15
  SPEAKER_00: And I'm I'm so glad that we're not not listed because you know, roll forward today, conditions have not improved.
• 41:21
  SPEAKER_00: We would have been in exactly the same position, heavy discount, no ability to issue fresh equity.
• 41:28
  SPEAKER_01: I I actually think that if you're listed, despite sometimes it feeling unfair, it's the purest form of signalling.
• 41:35
  SPEAKER_01: And we, when you're listed, there's nowhere to hide.
• 41:38
  SPEAKER_01: Effectively, what the market was saying is there's a liquidity crisis and there's an interest rate shock.
• 41:43
  SPEAKER_01: And that hurts you on your day-to-day share price.
• 41:47
  SPEAKER_01: So you're getting feedback from the market immediately.
• 41:50
  SPEAKER_01: I think a lot of private funds, and if you look at what's going on in private credit at the moment, there's, you know, they can see market conditions and trading conditions on the stock market being very, very challenging.
• 42:02
  SPEAKER_01: And they're going, we're fine.
• 42:04
  SPEAKER_01: You know, the uh the valuations are still what they are.
• 42:08
  SPEAKER_01: And the the valuation problems smoldering and festering away, and they get not getting that much feedback until they try and do the kind of quarterly match bargaining auction, and there's no there's no buyers in the secondary market for private credit or private equity either.
• 42:23
  SPEAKER_01: Um, so I actually think in in a weird way, we got a very early heads up that there was a liquidity problem.
• 42:31
  SPEAKER_01: And having been able to come off the market and put into a private structure, we're now putting a private structure in place that kind of we know market, secondary market conditions and trading conditions are quite hard.
• 42:43
  SPEAKER_01: So in our private format, we've really learned, okay, well, how do you make the private structure, which has got to be the way to do it at the moment?
• 42:50
  SPEAKER_01: How do you address liquidity?
• 42:53
  SPEAKER_01: How do you make it as liquid as it can be?
• 42:56
  SPEAKER_01: So I think I think it's a learning curve.
• 42:57
  SPEAKER_01: And I think a lot of private equity infrastructure, private credit, probably had a year or 18 months worth of grace before they realized that the valuations were quite challenging and that the secondary market was really quite soft.
• 43:13
  SPEAKER_01: So I think kind of we had that immediate feedback, we reacted to it, and I think we're kind of thinking, well, let's let's learn from that experience.
• 43:20
  SPEAKER_02: And it meant something back better in the private market.
• 43:24
  SPEAKER_02: Yeah.
• 43:24
  SPEAKER_01: So it's not almost an early opportunity to kind of reshape it.
• 43:29
  SPEAKER_00: And we're we're working now on, you know, recognize that you know liquidity in the shares has been lost from being listed to going going private.
• 43:38
  SPEAKER_00: But that is finding a solution for you know the liquidity in in the the shares is something we've been really focused on.
• 43:47
  SPEAKER_00: And we're working on something at the moment, and certainly something to watch this space on about solving solving that, providing a a deep pool of liquidity for investors um.
• 44:00
  SPEAKER_00: on a frequent basis um based on nav and so we we're working on something and we're quite quite excited you know in in the coming sort of weeks and months we'll have quite a bit more to say about that so we're sort of we're cooking something up actually space people actually space um okay so give us scale today in terms of AUM number of assets where we sit so we AUM is uh approaching it's about 250 million pounds of AUM um the portfolio is 31,000 hectares um and we're approaching nearly a hundred assets uh in in terms of you know total number of investments so far I mean just calling out the afforestation scheme I mean the strategy's afforestation led it's uh 12.5 million trees um we've planted seven over seven million trees so far um and uh on track to have planted 10 by next year um and the the I guess the tree planting program we believe it's the largest privately coordinated tree planting program that the UK has seen for a generation for for over 50 years um and our portfolio is equivalent to a third of the entire area that the UK planted with trees last year.
• 45:20
  SPEAKER_00: So we you know we think this is a nationally significant uh tree planting program.
• 45:25
  SPEAKER_00: It is it is super cool.
• 45:28
  SPEAKER_00: And um yeah there's yeah we you know we could continue to scale and um and I think one of the other things we're you know we've been when we were listed we were very focused we were it was forestry led you know forestry and afforestation one of the things and that that was the advice at the time if you're a listed entity uh listed investors want to know you know they want very tight guardrails around okay what's what what risks am I taking and so we were advised um keep it forestry focused don't make it a sort of a very broad natural capital fund that could invest in all sorts of different areas that would be that would be too much to digest too much education but since we've become private we have broadened the mandate um to be more of a holistic natural capital uh investor hence the name change from Foresight Sustainable Forestry to Foresight Natural Capital and so we're now working on diversifying the portfolio into other areas you know expanding into areas such as peatland restoration um you know biodiversity net gain in England the mandatory scheme uh regenerative agriculture and and other you know we're considering other um ecosystem services you know be beyond that as well so we're kind of yeah uh the next sort of stage of growth I think there'd be lots more tree planting and complemented by other ecosystem services diversification which which part of um that expansion are you most excited about which are the additional assets you're really keen to get in the mix I think I mean biodiversity net gain is uh the mandatory system in um in England is an area we've been looking at very closely um and we got got very close to acquiring some assets there there was a consultation um that took took place last summer and we sort of put a pause on doing that until we knew you know where exactly is you know the are the is the rule set and the regulation going to land.
• 47:27
  SPEAKER_00: But that that's an area that we're um that we that we're looking at.
• 47:30
  SPEAKER_02: We just sold our first BNG units.
• 47:32
  SPEAKER_02: Okay.
• 47:33
  SPEAKER_02: So uh within seven days of them being registered we sold um river restoration units at£55,000 a unit.
• 47:41
  SPEAKER_02: Fantastic which was super brilliant so we've we've got the three biggest individual projects so uh Gresham and Environment Bank have got more individual units but we've got the three biggest individual projects each over a thousand units and um this one was in in Mornacot in Devon so yeah within seven days getting them sold was amazing.
• 48:01
  SPEAKER_02: Yeah that's that's where I was when we last met I think you were yeah we did that that state okay so the NCPs was confirmed yesterday in terms of the the pipeline for uh BNG requirements applying to all national strategic infrastructure projects that's how we very much view the market we're gonna be serving I I I don't think we ever thought we'd be selling BNG units direct to individual house to builders or developers in that regard but we do think the national strategic infrastructure projects is a a really exciting avenue because they don't get to choose their their lines of development in terms of the habitats they're going to disturb and and they have to do things in the right way.
• 48:37
  SPEAKER_02: So we're excited that that's stuck as well.
• 48:39
  SPEAKER_01: I think nutrient neutrality is another area that's um complementary again it's a sort of regulated piece.
• 48:48
  SPEAKER_02: Also seeing in in England sort of people kind of doing like puzzling you know kind of BNG combined with woodland credits combined with um there's the there's the biodiversity code as well in relation to woodland near water and things like I just think we're in we're still in a hotbed of innovation and development in terms of the sort of almost back to your new product world but in a natural capital lens you know Restorer doing their 30 for 30 credits and uh credit nature have got nature credits up in Scotland.
• 49:18
  SPEAKER_02: So there's going to be all these different things that will settle down in the future as a whole different array of products and tools I think.
• 49:24
  SPEAKER_01: I think for us it's um it's focusing on the risk adjusted return envelope that we've created for our you know for our strategy.
• 49:34
  SPEAKER_01: So we're looking for across the whole fund 10% gross returns over roughly a 10 year sort of timeframe um even though we're an evergreen structure.
• 49:46
  SPEAKER_01: So that 10% could be a mixture of things it could be some sort of single digit um baseline investments you know agriculture or forestry um as the kind of underpinner and then we're looking at things like afforestation but we've always got our eye on merchant risk and credits risk and BNG neutral neutrality you've got this regulated demand quite quite closely watching you know the next election cycle and um you move move to the right or to the left could impact the regulated demand.
• 50:22
  SPEAKER_02: It'll just be a move to mess.
• 50:24
  SPEAKER_01: It'll just be like it won't be left or right it'll just be a complete mosaic of stuff that so I think I think where we're think where we see this is it has to meet a risk adjusted return profile.
• 50:34
  SPEAKER_01: So what if the merchant credits and the biodiversity credits were worth zero do I still have a core return that's acceptable how do we diversify uh for political risk so at the moment we're quite focused on Scotland where I'm based and got quite a lot in Wales and a little bit in northern England but we don't have much in England and we see a huge opportunity in England.
• 50:54
  SPEAKER_01: And I think diversifying away and sort of spreading uh into different countries, it spreads your political risk, it spreads your climate and physical management risk.
• 51:05
  SPEAKER_01: There's lots of reasons why we want to do it but every project we'll still have to have uh meet our kind of parameters of does that deliver a risk adjusted return that's sort of in keeping with the fund does it blow the the overall fund risk return profile but we can be quite flexible we've got the skill sets to analyze and we're really excited about and we're seeing people signing up for carbon credit and biodiversity credit off take contracts and seeing those deals coming in in the voluntary market, I think that will allow us to find the right projects the best projects in that and support them and get behind them because they'll meet our kind of risk adjusted return requirements.
• 51:46
  SPEAKER_02: We um so I love that it's exactly why we packaged up so four large English assets alongside the the Scottish ones we had as well for that exact same balancing effect and diversification and really liking the eco-tourism and the built property side of that so we we should just just be over a hundred um outline planning permissions for additional properties as well across the portfolio.
• 52:08
  SPEAKER_02: So that'd be a key bit of what we're looking to bring in as well.
• 52:11
  SPEAKER_02: I I I'm not suggesting we're gonna build those out but someone will to provide homes in local communities and things.
• 52:17
  SPEAKER_02: We are uniquely placed in the UK to have that premium product on the on the carbon side of things because you can show people like you do you can take people to the estate you can take them through the store you can show them the the positive impact environmentally and socially it's having and um been with a lot of investment banks the past few weeks and the narrative is no one wants to buy a credit and take any counterparty risk.
• 52:38
  SPEAKER_02: They don't want to do something that's essentially good and risk any negative press on the back of it.
• 52:44
  SPEAKER_02: So premiumization is the real key.
• 52:46
  SPEAKER_00: Yeah and I think there's a a real appeal you know the UK as a destination for natural capital investment yes it is more expensive per hectare to buy you know a hectare of land for a forestation or for an existing woodland.
• 53:02
  SPEAKER_00: But what's underpinning that is that we've got a pretty effective rule of law in the UK things like illegal felling isn't you know it's not a major issue in the UK you start to invest in natural capital in you know in sort of some third world jurisdictions there are all sorts of other risks that you're just not exposed to in the same way in in the UK and so it is a it is really quite a safe haven natural capital destination and that's that's part of the appeal.
• 53:28
  SPEAKER_02: Where are you guys on utilisation of insurance across the the portfolio at the minute for your natural capital products?
• 53:34
  SPEAKER_00: Yeah so we we do use insurance um you know particularly um wind wind throw and fire risk um are are probably two of two of the bigger risks that um that we face and you know we're glad we have the have the insurance um we have called on it uh on a couple of occasions um in fact actually during just after the IPO was Stormarwin and um it was we had an offer on the seed assets portfolio as part of the IPO um but Stormarwin did did damage some of the port you know some of the um numerous of the of the forests um and so yeah it was a it was a good thing there was an insurance in policy but I think it's it's the right thing to do I think to ensure against those kind of physical physical risks.
• 54:22
  SPEAKER_02: I think the range of products and services is just expanding rapidly by the day.
• 54:26
  SPEAKER_02: So we've got a round table coming up with Kita and Insurance Re and a load of others about what is available at the moment and what will come in future.
• 54:34
  SPEAKER_02: I think the more standardized we get on that the more consistent those policies come it's better for all of us.
• 54:39
  SPEAKER_00: Yeah yeah and things like insuring you know carbon credits for example is is something we're considering um but I think we're um the kind of next the next 12 months um we were really pleased um we've now taken our first asset through the full life cycle so um bank uh woodlands was a uh sheep farm in Wales that we acquired um uh around the time of the IPO um we've you know secured planning permission the grants and we physically planted that that new forest um and we were delighted to we've we exited and sold that forest um uh in sort of October November time last year and that has been a really important transaction for us it's been a complete proof point of our business model transaction for the sector because I think you're the first one who's gone through that whole cycle that can demonstrate it.
• 55:33
  SPEAKER_00: And yeah so we with that transaction we've we've booked a 1.8x multiple and a 15.5% IRR and we've we went into it on the basis that we need to deliver competitive returns.
• 55:46
  SPEAKER_00: You know natural capital's going to have to compete against anything else that investors could put their capital towards and it was those sorts of returns that we've always been targeting.
• 55:55
  SPEAKER_00: And it's it's been great to now have the realized track record um and what's exciting is we've got 55 other forests that we've just planted quite quickly coming down coming down the track.
• 56:07
  SPEAKER_00: But I think that will be that will be really important for for us and for the sector the track record that you can actually generate you know team type returns and the majority of that return has come from land.
• 56:18
  SPEAKER_00: You know this is um for us it's you know two-thirds of that is it's it's a land capital appreciation and the carbon credits are the are the cherry on top.
• 56:28
  SPEAKER_00: That's interesting it's we're playing in it's there's an arbitrage opportunity available across the UK that essentially marginal pasture and grazing land that has just tipped into being subeconomic you can acquire at a at a price and by converting that into a a young commercial forest over say five years broadly speaking you can double the value of that land and and it's just that that type of land in the right place is worth more as a commercial forest than it is within its current land use.
• 57:07
  SPEAKER_00: And so that's that's and we we think that's quite compelling because it's you know it's a fully asset backed return it it's land.
• 57:14
  SPEAKER_01: But if you look at the the bank farm as a case study, you know we delivered 15.5% IRR as Rich said that the core is a sheep farm of that standard and quality is not worth as much as a uh a really high quality um commercial forest the yield class we're delivering now is above 30.
• 57:36
  SPEAKER_01: So the cumulative meters cubed per hectare including the thinnings is it's in a completely different league to most of UK commercial forestry.
• 57:46
  SPEAKER_01: The difference between yield class 20 and yield class is not a straight line the yield curves don't work like that.
• 57:52
  SPEAKER_01: So the difference between yield class 14 and 30 is more than double the volumetric production but we bought this high quality forest and that arbitrage is the kind of baseline return it's just under 10% um and the carbon's the kind of as Rich was saying the the kind of bonus the the kicker and could be in a huge upside you know if we could deliver uh prices in the sort of up to a hundred which you guys have achieved and hats off for that amazing transaction that dropping to the bottom line could be amazingly exciting um but what what we've seen is we've also got this we've got three engines we've got lat the underlying solemn you've got the trees on top and you've got your carbon but you've also got a stock of timber in our business model and what I'm we we were quite conservative in our our kind of how we modeled it and how we bid stuff um but the timber prices during the holding period have been sort of coming down off the the spike from COVID we saw this huge log prices went absolutely through the roof and all the timber indexes were going bananas in 2022.
• 59:11
  SPEAKER_01: And we've seen timber prices come back to I guess what would be quite a normal level but because GDP growth and construction has not been booming due to the interest rate shock we haven't seen timber prices doing that kind of move.
• 59:24
  SPEAKER_01: So on one hand timber's quite cyclical we accept that and when it moves it will smash inflation and drive nav growth and it will really drive very and it has that it will do that.
• 59:37
  SPEAKER_01: It's a question of when when we're going to see the next wave of construction and then that constraint supplies kicks in we've delivered the 15.5% IRR through the land arbitrage and the carbon with the timber engine kind of running in it's been fine we can still harvest profit profitably but the timber engine hasn't even kicked in yet so if carbon prices could kick up a bit more and timber prices go on a run th those returns could become sort of PE style um and that timber engine is really important and yeah the supply issue in the UK I mean we're woefully short um yeah I mean I think um we import amazingly 80% of all timber that is consumed in the UK um is imported and this statistic always staggers me that makes the UK little old UK the second largest net importer of timber globally.
• 1:00:32
  SPEAKER_00: By by volume and by value.
• 1:00:34
  SPEAKER_00: Behind only China how how how is that possible?
• 1:00:38
  SPEAKER_00: There's not that many of us um so but it you know that there is a security of supply issue um and we see uh you know disruption to um uh vessels and uh and shipping routes and you know what's what's going on in the Middle East at the moment um you know it it's a risk to the UK to be so woefully undersupplied but what what that undersupply is creating is this this arbitrage opportunity and it's structural in nature you know we could plant all the trees that we wanted to today to get us up to you know 20 30 40% forested but it's not going to help us for 40 years.
• 1:01:20
  SPEAKER_01: The trees take that long to grow so there is this fundamental structural issue and it and it's here to stay for for decades and that's what's that's what's creating this this arbitrage opportunity um around the land price that we're that we're playing into people say to us why why do we need more trees why do we need more biomass in the UK and we use the whole tree the logs up to up to the top of the tree for wood chips and panel balls and you know you can you can actually make clothing out of um wood fibers if you you squeeze out the right parts of it so you you can use every bit of the bioenergy cycle and and if you go for the circular economy where you're reusing and recycling the the fibre it's an incredible kind of sustainable material.
• 1:02:04
  SPEAKER_01: But people say why do we need more timber in the UK?
• 1:02:08
  SPEAKER_01: Why do we need the the circular bioeconomy?
• 1:02:11
  SPEAKER_01: And is sort of basic stat, you know we're 13% forested across the UK it's a bit more in Scotland uh but England's less than 13 it's around 10 or around there.
• 1:02:24
  SPEAKER_01: So our average across the whole of the UK um including Northern Ireland is about 13%.
• 1:02:30
  SPEAKER_01: And the European forestation average is 45%.
• 1:02:34
  SPEAKER_01: And then if you got to Finland and Sweden um you know you're getting up 75 plus.
• 1:02:41
  SPEAKER_01: So so people say well what why are we the the second biggest importer in the world?
• 1:02:47
  SPEAKER_01: It's because you know we're we're we've got we need to sort of triple the amount of forest just to catch up with the average in Europe.
• 1:02:55
  SPEAKER_01: So we've got a major major problem um but it's also a huge investment opportunity because if you look at that over a five 10 15 certainly a 20 year time frame there will be when we build um and we're using the whole tree and when the demand for this uh amazing material kicks in you've got this sort of inflation busting investment engine if you've got the stocks of the trees and they're growing every year that's the beauty of of a forest I mean fine you harvest it and then you've got to take that off the balance sheet and you you've got to pick your moment but you've got value growing kind of as we call it on the stump biological growth you've got an appreciating asset in a market that's going to go on a run next time there's a GDP growth and there's a building boom and there'll be just be a supply shortage.
• 1:03:48
  SPEAKER_01: And that's kind of really the underpinning of our investment thesis is okay timber is the anchor that's a kind of it's quite cyclical but it's a fantastic investment opportunity.
• 1:04:00
  SPEAKER_01: And then we look at food and we've been looking a little bit in Europe around nuts and stone fruits and olives and almonds and things like that.
• 1:04:08
  SPEAKER_01: And we see a theme there around you know food shortage.
• 1:04:12
  SPEAKER_01: So that thematic investment in those provisioning goods service and the ecosystem services wheel that's kind of the anchor our investment the land and the ecosystem the goods service the timber and the food but that's just the start that kind of underpins it.
• 1:04:28
  SPEAKER_01: And then we work round the kind of ecosystem services wheel into the kind of more the holistic management, carbon credits, flood protection, nature based solutions, nutrient neutrality you can really build into that but that timber anchor and that supply dynamic is is really kind of when we go back to the beginning when we were looking at and Richard's team were looking at the macro it's like we should be in that and it appreciates every year and it has got great and and then and that's quite compelling for investors that it kind of they're looking at the financial return they're looking at well what if the the credits market don't work out so you you've got land you've got food production you've got timber the supply demand problems are there that's a great thing to be in but we're gonna do these frontier things as well you know which are really important in the social aspects uh and it does I think that does help to draw investors to the table that kind of hybrid model.
• 1:05:26
  SPEAKER_02: Yeah I agree it's really compelling.
• 1:05:28
  SPEAKER_00: So you guys are raising again at the moment yeah we're looking to um uh yeah raise some more money from our existing shareholders and we're um uh looking to to broaden the shareholder base and and bring in some some you know additional institutional investors and and family off uh family office type investors um our ambition with uh Foresight Natural Capital is to go from um a nav of about just over 200 million uh currently up to half a billion currently over the next two to three years.
• 1:06:01
  SPEAKER_00: So we've got big and big growth ambitions.
• 1:06:04
  SPEAKER_00: And as part of that, um yeah, we we need um yeah we're gonna need to bring on board some some some new you know new shareholders, new partners for the for the next wave of growth.
• 1:06:13
  SPEAKER_02: Love it.
• 1:06:13
  SPEAKER_02: And is that going to be deployment UK only or are you looking to broaden to Europe under that mandate?
• 1:06:18
  SPEAKER_00: So Foresight Natural Capital Limited is a UK focused strategy and I think for the time being will remain UK focused for the for for the foreseeable.
• 1:06:30
  SPEAKER_00: In parallel we've been working on a pan-European strategy that takes all of the kind of successes and learnings from the UK but applies that across a broader European um geography.
• 1:06:44
  SPEAKER_00: So we've we're looking at a strategy uh that is does you know more afforestation in the UK afforestation in Ireland um does things like permanent tree crop um afforestation in southern Spain and Portugal the kind of stone fruits that Rob was Rob was talking about um and then forestry enhancement in Finland um there's a fantastic opportunity in Finland for instance it's a highly disaggregated um forest ownership model they're about 80% forested which reverse of the UK but about 10% of the national population uh actually own a forest um and they're all quite small holdings they're not necessarily sort of super professionally uh managed forests in in all instances they're generally not FSC or PEFC certified so they're we've identified a really compelling opportunity to effectively buy and build aggregate smaller clusters of these properties into a um sort of an industrial scale complex um and there's a there's a a compelling capital appreciation opportunity if you look at the two strategies um there's a risk adjusted return theme which we talked about but you know I think there's three words that kind of encapsulate what both our strategies focus on.
• 1:08:03
  SPEAKER_01: So we've got development that land arbitrage you've got enhancement which is if you're buying an asset actually the better asset to buy is one that's a good asset but not being managed properly so you can bring it up so you've got develop enhance and then you've got as Richard was referring to aggregate and if you look at um what's available in the market right now from funds but also at assets um there's sort of turnkey brownfield uh assets that might be 50 to 250 million euros in size that kind of thing they're delivering they're great assets but they're delivering the kind of five to eight percent nominal returns is sort of quite passive brown field in kind of renewables terms with we're actually thinking about value add which is how do I get 10 to 20% returns and to to get into that you've got to go develop enhance or aggregate and if you're not doing those things um you're back into the single digits again.
• 1:09:07
  SPEAKER_01: The challenge and the rub of trying to go like that is that you end up having to do the aggregation.
• 1:09:12
  SPEAKER_01: You have to do lots of small deals um you can't just go out there and do 50 million euros in one chunk.
• 1:09:18
  SPEAKER_01: You've got to think about how simple is it if I'm doing one million euro transactions, can I do 12 of them at the same time and very quickly aggregate and build because when you go a bit smaller and you move away from that sort of beautiful turnkey portfolio, you find there's a few percent of value in there because there's a barrier to entry for quite a lot of managers who are just they're not willing to do the work or they're just they it's got to be a billion dollar strategy, you know, that kind of American style I didn't know you could do accents.
• 1:09:50
  SPEAKER_01: Yeah.
• 1:09:50
  SPEAKER_01: So you can tell I don't do it very often but you know that billion dollar strategy thing is a barrier.
• 1:09:58
  SPEAKER_01: You know people want to do and if I'm going to do a billion dollars I need to do it in 50 to 100 million chunks.
• 1:10:03
  SPEAKER_02: Yeah.
• 1:10:04
  SPEAKER_01: But then you're into the single digits.
• 1:10:05
  SPEAKER_01: And I think that's where the opportunity is you know develop, enhance, aggregate and find models where you can do that, get the extra value, but they've got to be scalable and you've got to be really efficient at deploying and you've got to be able to do sort of 20 30 deals in one go.
• 1:10:21
  SPEAKER_00: That's that's what we've been focused on is and we I mentioned we've got nearly a hundred assets in the portfolio.
• 1:10:26
  SPEAKER_00: That's a lot of deals yeah um that's a lot of due diligence that's a lot of models and we've purpose built the the sort of the investment process with with you know quantity of deals and deal flow in mind.
• 1:10:39
  SPEAKER_00: And so we parallel track um things like the legal and physical due diligence um so that we can you know reduce the transaction time.
• 1:10:48
  SPEAKER_00: And there's lots of little things that we've done lots of kind of marginal gains but when you put them all together actually we can transact really quickly um and we're not compromising quality of diligence and being confident that you know we can plant a forest on this land and we can get this sort of design um and we you know we're confident we can work with communities to find a solution we're not compromising that but we're just doing it really efficiently and and high volume.
• 1:11:15
  SPEAKER_01: When I worked in bioenergy and before I was at Force I worked for a developer I'd work on a 50 to 250 million pounds you know energy from waste plant or a bioenergy plant for anywhere and when I was development developer you might be working on a project for four years and then you get to financial close and that's just the start.
• 1:11:35
  SPEAKER_01: If you're an investment manager in bioenergy you might be from first meeting the developer that you're going to back to back their project or the MA deal comes in you're talking about sort of six to 18 month timeframes to do one deal and there's quite a lot of work to kind of find the deal that you're going for and then it's really intensive and you're doing it's a lease structure there's project finance there's mezzanine there's long-term contracts I mean it's project finance it takes months and months and there's so many stakeholders and there's joint ventures and the equity split up and then the the mezzanine and then the debt might be syndicated the level of complexity is massive and it's great because when you get to financial close and then when you start building something it's a big project and it is worth the squeeze.
• 1:12:23
  SPEAKER_01: Whereas in natural capital we've tended to think about well how we need to go small and we need to develop enhance and aggregate which basically means we need to probably at this this stage of the market focus on buying freeholds because it's quicker.
• 1:12:37
  SPEAKER_01: And once you own it bringing the community on board actually the the thing that we've learned is that you then need to think about the community um and we're getting better at that but in in terms of governance you own the whole place you own the freehold you can be much more flexible and nimble around management and you can go out and do more transactions.
• 1:12:58
  SPEAKER_01: So it's a slightly different mindset and it is scalable um but we focus a lot on process efficiencies and buying efficiently management efficiencies managing things in portfolios it's not like it's a a really heavily structured super complicated 200 million euro energy from waste plant uh in Ireland or whatever where you know that's a whole that needs a project manager just for that project and they can probably do one or two of those in in their time that they have in in each year.
• 1:13:31
  SPEAKER_02: The the speed of deployment and the the scale of the portfolio is is astonishing.
• 1:13:36
  SPEAKER_02: This segue is beautiful into my favourite topic at the minute we're sat in an age of AI now.
• 1:13:43
  SPEAKER_02: How have you guys started utilising tools and techniques to allow you to make that process even more automated and and faster is it coming into the business?
• 1:13:51
  SPEAKER_00: It is and I've actually mobilised a task force within uh the real assets team at at Foresight and I recognized you know I could just you know could just see spreadsheets and um inefficiency um when you know that there's an AI solution out there.
• 1:14:10
  SPEAKER_00: And so I I lead a um a task force where we're specifically looking at um opportunities for AI um and we've identified you know we've done a kind of a time and motion survey how are people spending their time and when you do that it's actually quite staggering to see you know where the inefficiencies are you know on sort of what are relatively low value tasks that AI can easily do and and do well.
• 1:14:36
  SPEAKER_00: And so um yeah I'm leading this initiative to systematically introduce you know AI improvement after AI improvement um and it's across you know basic things like you know how do we put an NDA in place to how do we screen opportunities how do we how do we review a report on title um so yeah we're we're we're being quite focused actually on AI and see really quite an opportunity there to you know there's lots of further gains that we can make on what we believe is already quite an efficient process.
• 1:15:07
  SPEAKER_02: On a personal level for you guys are you are you finding efficiencies on an individual basis in using it yet?
• 1:15:13
  SPEAKER_02: Is it significantly impacting your workflow?
• 1:15:16
  SPEAKER_00: I'm using it every day.
• 1:15:17
  SPEAKER_00: It's you know I have Copilot on a screen now and it's I find it enormously helpful.
• 1:15:22
  SPEAKER_00: You know um you know tell me what are the key meetings of the day or if I've been away on on holiday you know what are the what are the key things I need to know for today um uh you know it can help you you know draft summarize complex documents it's it's an enormous enormously helpful great time saver.
• 1:15:42
  SPEAKER_01: I had a I had a guy who's just joined in our institutional fundraising team um used to work in a kind of retail um and listed space and you know he's a he's a young guy he's called Nick and he came over to my desk this morning and and he said how are we tracking investor QA and how organized are we around kind of feedback.
• 1:16:08
  SPEAKER_01: And then you know we've got a Q a a DDQ register and we've got our objections list of when people are sort of raising something that's a barrier and then we kind of think about how do we get a slide that addresses some of those points.
• 1:16:18
  SPEAKER_01: So we we've got processes in place but then in practice um a lot of stuff's done on emails and you come out of a meeting and you think someone's asked me a question and uh investor's asked me a question I'm on the train I'll go back send them the answer before I forget and we talked about how do we just get more organized generally on that front.
• 1:16:42
  SPEAKER_01: And we talked about you know using sort of notebooks I like a bit traditional I like a notepad but actually I think you need to evolve and get one where your notes automatically go into an email system.
• 1:16:56
  SPEAKER_01: And I'm sure we can manage I don't like opening a laptop in an investor meeting but if I can get a notepad thing that's pretty much like a notebook the beauty of that is it can go into an electronic platform and be logged away and what we agreed um and Rich as with your AI team love to get you know the the the what you call the tiger team we've yeah it's called the AI Tiger.
• 1:17:19
  SPEAKER_01: There's gonna be a lot of rebbing about that but yeah we'll get the tiger team involved the real asset tiger team which has the unfortunate acronym of rat which I didn't think when thinking coming up with the name of the TAS we'll get we'll get the rats and the tiger AI to draw the logo for each but but but uh we we will process that using AI and the idea is that we will um have an email which will be a kind of questions you know natural capital email so when the QA comes in you just have to copy in uh that email address and then so there'll just be an inbox full of stuff how often is it going to get reviewed and and the idea was it's quite a simple idea but will save us a lot of time is once that's data's logged you've got your notes questions and then you've got your email of the replies and the answers you can say to an agent tell us what's the number one top five objections that people have issues with investing in natural capital.
• 1:18:22
  SPEAKER_01: What do they like the most?
• 1:18:24
  SPEAKER_01: What what are the recurring questions in a meeting rank them order them come up with a list of solutions and that's the sort of power of it is to sort of just automating and when you get into full fundraising when because at the moment we're kind of we're in pre-marketing stage but when we go into full marketing and you're having 50 meetings a month he's got a new idea that's if well if um if we had had AI when we were doing the IPO I mean how much time would it have a DD I mean we so we were doing it think of each pitch like a Dragon's Den pitch.
• 1:18:58
  SPEAKER_00: You know you you go into a meeting there's probably five or six people and they're all just asking you know difficult questions um trying to trying to see how much you know and and test the strategy.
• 1:19:09
  SPEAKER_00: We were doing five pitches a day every day for about two months and after each one there was follow-up you know they had follow-up questions say can you send us uh we take an action oh can you send us that report can you give us an answer on this particular question and you're talking a PDF multiple pages of word that's PDF'd and we were doing those pitches and then you know we were then having to manually pull together those PDF responses maybe at about around midnight.
• 1:19:36
  SPEAKER_00: Overnight because the next day you've got another five pitches and five more follow-ups.
• 1:19:41
  SPEAKER_02: But if we'd had AI, I mean it would have I might have got a bit more sleep during the during the you guys know I'm a data geek and it this is the period I hoped would arrive the convergence of everything data and natural capital and it's just felt like an absolute dream for us.
• 1:20:00
  SPEAKER_02: And I was reading the um uh thinking machines book which is like the history of NVIDIA and um it there's such an echo in this so I I send this screenshot of me reading the book to our our data team and they send me about the code base that runs our MRV software and um NVIDIA's highest functioning data and analytical chip has got something in it which is called CUDA which is the thing that lets the chip do the thinking and it sends us the the screening of how our drone data's all processed and it's all doing it on CUDA chips.
• 1:20:33
  SPEAKER_02: So I didn't even know we were using it already.
• 1:20:36
  SPEAKER_02: Yeah exactly so um I I think about AI and our business in in two ways.
• 1:20:40
  SPEAKER_02: One is the actual data analytic auction intelligence part of things which is um we've got our MRV now so it is doing individual tree carbon measurements to centimetre precision by uh satellite data drone data and ground level radar so we've been able to measure the carbon in individual trees and these things are beautiful when you see an individual tree visualized by the centimetre they're just stunning and on the so we've got it piloted on our first um woodland area at Leon which is where we sold the£125 a ton to Birje salmon trees and it's finding somewhere between 19 and 20% more carbon than the traditional methods thought it was because of this approach.
• 1:21:19
  SPEAKER_02: And um so we started talking a little bit about this on one of the podcasts and we got an approach from one of the world's leading strategy consultants to say we have been looking for this tech.
• 1:21:28
  SPEAKER_02: Can we have a conversation with you?
• 1:21:30
  SPEAKER_02: And you know we knew there were some US companies who were building similar MRV platforms so we'd heard of Pasharma have you come across those guys I haven't actually they raised a hundred million to build an MRV platform out so we were like they must be doing something super super cool.
• 1:21:43
  SPEAKER_02: The strategy consultant reached out to us and says can we have a conversation about what you do and we show them they're like this is the best anyone's doing on the planet and we're like no no no these other guys and they're like this is the best so super super excited about that.
• 1:21:55
  SPEAKER_02: And so that uses a machine learning algorithm to identify every individual tree to update a data set of what a tree looks like and how it stores carbon uses the woodland carbon code and every form of yield class and everything in there we're just about to move that onto a complete cloud computing solution because the hardware just won't cope with it anymore.
• 1:22:14
  SPEAKER_02: It's producing terabytes of data every time we look at a woodland so that's kind of like the heavy engineering part of what we're working on it.
• 1:22:21
  SPEAKER_02: On a personal level we've got people in the team so our main guy our investment manager Matt top first out of Cambridge genius when it comes to AI he's literally running he's got four employees who are all AI at the moment in terms of stuff like literally every day.
• 1:22:37
  SPEAKER_02: So um he's built me a fully functional PA that's purely claude based so every meeting is annotated is noted is briefed I'll show you after we finish recording but there's a 30 question doc based on you guys that was all AI generated.
• 1:22:53
  SPEAKER_02: I think because of the nature of our business we can be really agile with that but every level of the organization we're working with that type of speed to the point whereby I I walked in six months ago and said you have two choices fully embrace AI or work somewhere else.
• 1:23:06
  SPEAKER_02: Because I I've got a 50 person business but actually we're at 70 or 80 people with AI now and it's just so many people don't realize it's coming but it's transforming everything.
• 1:23:16
  SPEAKER_02: Yeah no it's it's really exciting and slightly scary.
• 1:23:22
  SPEAKER_02: It's like have you have you had that scary moment yet?
• 1:23:24
  SPEAKER_00: Yeah I have I've I mean I've had one where uh I was pulling a a summary slide together an update um and I asked it for a a quotation uh you know a statistic about you know how much is being deployed uh capital is being deployed into natural capital or what's been committed over the next decade and it AI came up with a very credible answer put it in my slide the slide went off and then the slide came back to me and one of the directors uh said um yeah can you share the report and I was like yeah sure yeah I jumped on AI and then it it basically hallucinated the statistic it was it was based on consensus and you know I inferred that you know there would be a this other and and I you know I was sort of like oh my you know it was it was I was slightly embarrassed in a way you know I thought I should have and it and I now you know always go to the root you know source of being show me I've got it I've got to believe it.
• 1:24:18
  SPEAKER_01: I had quite a funny one I think it was yesterday we were marketing were saying we need a strap line for natural capital and we need to build in sort of the community aspect and Richard was probably I don't know if you were working from home yesterday or whether you were across the across the the the desk in in in the office in London and we've got the email at the same time and there'd been a bit of tit tit for tat around the kind of email chain around trying to get it right and I think we were thinking the same thing.
• 1:24:48
  SPEAKER_01: It's like we need to shorten this and make it snappier and I was on I was on co-pilot asking it saying how do you shorten this sentence lose a couple of words make it snappy but don't throw the baby out with a bath water didn't write that into into here because it maybe you can interpret that but Rich had obviously been on co-pilot asking exactly the same question.
• 1:25:10
  SPEAKER_01: And as his email came through I was like he's asked it you know I was kind of like it's the same it's identical suggestion and so you got there first and so but I was just and and I think that is the biggest it it it's a brilliant tool but it's the the biggest weakness of it is the how much originality and so my thought process and I I really want to learn how to use it and probably more of a kind of I'll wait for the other people to kind of work out some of the models I was listening to your podcast with Martin Berg and I was like there's some great ideas in there I'll nick that and start applying it.
• 1:25:46
  SPEAKER_01: So I'm a bit behind the curve but I will start using it.
• 1:25:49
  SPEAKER_01: But one of the commitments I made to myself yesterday and and actually listened to Podcast is that I'll start using it but I I will sometimes have to go away and lock myself away from AI and write something original because I think I think actually if you had the time you could make something more meaningful and and and and and and that kind of both coming up with the same answer.
• 1:26:12
  SPEAKER_01: That was a bit scary because we're all going to converge into the same in loop is so important.
• 1:26:19
  SPEAKER_02: So um so my book two comes out in June and three in January so uh book one I did was like the concept of OC and the idea of it.
• 1:26:30
  SPEAKER_02: Book two was the real business model of it so it's called Rewilding Wealth and how we actually look at the finances of it.
• 1:26:36
  SPEAKER_02: You guys are going to learn nothing in it don't worry about it.
• 1:26:37
  SPEAKER_02: There's some pretty pictures though.
• 1:26:39
  SPEAKER_02: Book three is the data side of it.
• 1:26:41
  SPEAKER_02: So um I know you and I have talked about this but prior to this year because of the nature of our sort of funding structure and um and where Oxygen house and blue and white capital come from we've always been really protective about data and IP so we've never talked about you know you beautifully articulated how you find estates and how you um sort of triage the opportunities well we've valued every square meter of the UK across tourism and biodiversity and every aspect of what we look at.
• 1:27:09
  SPEAKER_02: So we've ranked them all already.
• 1:27:10
  SPEAKER_02: So when an agent rings up and goes I've got 5000 acres in Perth we can go yeah we know where it is it's our 13th best estate of this kind etc but we've never talked about that model prior to this year but because we're gonna fundraise for the first time this year so we're gonna try and raise half a billion ourselves for for global distribution this year.
• 1:27:28
  SPEAKER_02: So we're like right we need to start talking about the data side of it.
• 1:27:31
  SPEAKER_02: And actually there's a big thank you to Greg Jackson at Octopus because I spent some time with him out in New York Climate Week and he was like you've got the Kraken of natural capital.
• 1:27:39
  SPEAKER_02: Why aren't you talking about this?
• 1:27:41
  SPEAKER_02: We're gonna spin Kraken out I'm like I haven't got the board there yet I will do and then part of Greg's sort of influence was doing that.
• 1:27:47
  SPEAKER_02: But that's why so we had a podcast with Lara and Doris who are two of our leads on data and increasingly we're talking about that and the book that comes out in January is the how we do everything from a data and a an AI perspective because we think it's Such a such an important part of what we do.
• 1:28:02
  SPEAKER_01: You talked about the using it for the credits aspect of things and the MRV.
• 1:28:07
  SPEAKER_01: I think, you know, apart from the day-to-day kind of operational working stuff that we've discussed, I I completely agree with you.
• 1:28:14
  SPEAKER_01: That's where I see, you know, the sort of biodiversity data, ecology data, carbon data, stocks of timber.
• 1:28:22
  SPEAKER_01: Yeah.
• 1:28:23
  SPEAKER_01: There's a massive, massive efficiency.
• 1:28:25
  SPEAKER_01: And just being able to articulate, boil all of that data into something understandable, which is, you know, what are the co-benefits of the credits, data management, logging that into the system, and then articulating that to try and drive a premium for your product and make the MRV more efficient.
• 1:28:43
  SPEAKER_01: I see that as like integral.
• 1:28:45
  SPEAKER_01: And that's where AI is going to and data management is going to be absolutely vital to natural capital.
• 1:28:49
  SPEAKER_02: The team have built like 50 apps that we need to run.
• 1:28:53
  SPEAKER_02: So if we owned a built property portfolio, you could buy an off-the-shelf software solution to do it.
• 1:28:58
  SPEAKER_02: Still, to the best of my knowledge, you cannot buy a standalone estate management software that will do property, land, all the things we need on an estate.
• 1:29:08
  SPEAKER_02: So we've built all those tools.
• 1:29:09
  SPEAKER_02: My favorite one is if you walk up to a gate on our property with an OC phone, it will ping and give you the gate code you need to walk through it.
• 1:29:16
  SPEAKER_02: We've got thousands, you must have tens of thousands of gates.
• 1:29:19
  SPEAKER_02: The codes and how you deal with those, the keys and stuff.
• 1:29:21
  SPEAKER_02: So this will just recognize you.
• 1:29:23
  SPEAKER_02: It'll recognize the gate and say, this code is 7247.
• 1:29:26
  SPEAKER_02: There you go.
• 1:29:26
  SPEAKER_02: And walk through.
• 1:29:27
  SPEAKER_02: So we've built that so it's automated.
• 1:29:29
  SPEAKER_02: And things like we've got an automated gear management app for the number of herbivores we have to manage.
• 1:29:34
  SPEAKER_02: So it will identify the species, the sex, estimate the weight of it, and plots it back on a centralized dashboard.
• 1:29:40
  SPEAKER_02: So inadvertently, we've ended up holding one of the biggest sets on herbivores in in Scotland already.
• 1:29:45
  SPEAKER_02: So but we've only built the things we needed to run the portfolio, which is why we've been able to run really lean as a central team.
• 1:29:53
  SPEAKER_02: But for the first time, because we're now talking about data, we've had a huge amount of inflow saying, Can I buy that?
• 1:29:58
  SPEAKER_02: Could I work with that?
• 1:29:59
  SPEAKER_02: So we're now like, okay, what does the data side of the business look like?
• 1:30:02
  SPEAKER_02: So I'm really excited about that.
• 1:30:03
  SPEAKER_01: So you've moved away from the classic, uh, the old gate with the padlock on it with the four digits.
• 1:30:10
  SPEAKER_01: It's just zero, zero, zero.
• 1:30:11
  SPEAKER_01: Well, no, it's 1066.
• 1:30:13
  SPEAKER_01: It's always worth a shot.
• 1:30:15
  SPEAKER_01: So if you're in a forest and you're you're walking around, it there's a sort of there's probably a one in one in three chance at 1066 because it's easy.
• 1:30:24
  SPEAKER_01: It's almost and and and someone told me that, and I have actually been testing it as I've been going around Scotland, and like quite often it works.
• 1:30:31
  SPEAKER_02: Charles, can we change any code that's 1066?
• 1:30:34
  SPEAKER_01: Give one was at uh at 40, which used to be owned by a French Belgian uh person.
• 1:30:41
  SPEAKER_01: And uh, I was joking with the estate manager that they had uh Agencourt or some you know, some some European victory date rather than 1066 on uh on that estate.
• 1:30:51
  SPEAKER_01: But uh but 1066 is always worth a shot.
• 1:30:54
  SPEAKER_01: Uh it feels like you guys have moved beyond having to to to punt for that when you get stuck behind a deer fence.
• 1:30:59
  SPEAKER_02: Guys, I've I've adored having you in.
• 1:31:01
  SPEAKER_02: You you've got a big day ahead of you, so I've got to let you go.
• 1:31:03
  SPEAKER_02: But um I always end every podcast with what is the one question I haven't asked you you wish I had.
• 1:31:15
  SPEAKER_01: Probably probably the a little bit more about what's next, really.
• 1:31:19
  SPEAKER_01: Um I know we talked about that, but I think kind of the next three years, kind of that that would probably be what I'd say and and the question set the question answer is So what's next for us?
• 1:31:37
  SPEAKER_01: Get from 200 to 500 million, which was talking about that.
• 1:31:42
  SPEAKER_01: We have uh some news we've been working on um something that's unique and game-changing in the private markets because we're solving that problem we were talking about earlier around discount control.
• 1:31:55
  SPEAKER_01: So all of those learnings about being on the investment trust market, we have put together what we think is a truly unique liquidity package.
• 1:32:04
  SPEAKER_01: Now, it it's it's a strip of liquidity.
• 1:32:08
  SPEAKER_01: Um, we think that's very unique.
• 1:32:09
  SPEAKER_01: So it makes it semi-requirement.
• 1:32:11
  SPEAKER_02: Genius, it's absolutely brilliant.
• 1:32:12
  SPEAKER_01: It's quite simple simple in a lot of ways, but it it it is meaningful.
• 1:32:17
  SPEAKER_01: So it will make our investment our evergreen structure.
• 1:32:20
  SPEAKER_01: And the weakness of evergreen structures is there's no end date.
• 1:32:23
  SPEAKER_01: Yeah.
• 1:32:23
  SPEAKER_00: But yeah, the I the idea is um, you know, to create to transform the strategy to being semi-liquid.
• 1:32:30
  SPEAKER_00: Um and liquidity is so important in private markets, and we think it, you know, this this development has the potential to be a game changer.
• 1:32:39
  SPEAKER_02: Amazing, absolutely amazing.
• 1:32:41
  SPEAKER_02: Gentlemen, thank you so much for coming in.
• 1:32:43
  SPEAKER_02: I love what you do.
• 1:32:45
  SPEAKER_02: You two are two of my favorite people in the sector, so any opportunity to sit and learn from you is appreciated.
• 1:32:49
  SPEAKER_02: Uh, I need to let you go because you've got a massive day ahead, but thank you.
• 1:32:52
  SPEAKER_02: We really appreciate you.
• 1:32:53
  SPEAKER_02: Thank you so much.
• 1:32:53
  SPEAKER_02: Thanks very much, Rich.