STRICTLY PRIVATE & CONFIDENTIAL

Securing private investment in land regeneration

Paul McMahon

Managing Partner, SLM Partners LLP

10 June 2015

SLM Partners is an asset manager that focuses on sustainable land use

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Strategy is to scale up regenerative, ecological agricultural and forestry systems that deliver financial returns and environmental benefits

Investment professionals in London and New York, working with farmers and foesters on the ground

First fund, the SLM Australia Livestock Fund, has raised AU$105 million (US$80 million) in equity and debt

Launching new projects in Chile (sheep production) and Ireland (forestry), and exploring opportunities in USA and Spain

Target investors are pension funds, insurance companies and family offices

Date Creek, Arizona Downstream, same day, different management

Next door, same day, different managementSonoran Desert, Mexico

Near Victoria Falls, Zimbabwe Next door, same day, different management

In Australia, we use ‘holistic planned grazing’ or ‘mob grazing’ to restore grasslands

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Put animals in large herds

Divide land into many smaller paddocks

Improve stockwater facilities

Move animals according to adaptive plan

Use impact + rest to restore grassland

The SLM Australia Livestock Fund is up and running

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10-year, closed-end private equity fund

First closing in June 2012 with Danish pension fund as anchor investor

Rabobank is providing up to AU$30 million in debt

Strategy is to acquire and operate land for beef cattle production, implementing holistic planned grazing

480,000 hectares (1.1 million acres) of land acquired so far

8,000 cattle in the herd, with plans to reach 30,000 to 40,000 in 5 years

Target net Internal Rate of Return is 12% after all fees and taxes

7 managements units in Queensland and New South Wales

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Name:Cunnamulla

Charleville

District:Size (ha):Price:

PaduaCunnamulla43,174$10.0m

Name:District:Size (ha:Price:

Listowel DownsBlackall25,523$11.2m

Name:District:Size (ha):Price:

ColacQuilpie165,182$6.4m

Name:District:Size (ha):Price:

GarrawinEulo79,312$4.3m

Name:District:Size (ha):Price:

AmendaCunnamulla43,773$11.8m

Name:District:Size (ha):Price:

WillacoraCunnamulla49,120$9.3m

Name:District:Size (ha):Price:

EurekaEnngonia71,131$7.4m

Australia allows scale – big herds in big country

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Positive impacts were visible after the first year

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Neighbouring property “Noorama” under conventional management, 23 Mar 2014

SLM property “Padua Park” under holistic grazing, 23 Mar 2014

More animal grazing days were taken from the Padua Park side

than Noorama

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We are launching a new project in Chilean Patagonia

70% of grasslands of Patagonia suffer from degradation

Holistic planned grazing can restore grasslands, while improving productivity

Our operational partner has worked with 30+ sheep farmers in Chile and Falkland Islands

Strategy is to acquire grazing properties in southern Chile and introduce better grazing management

Revenues will come from sheepmeat (60%) and wool (40%)

Initial size of opportunity is US$100m

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There is an opportunity to harness investor interest in land

Global assets under management reached $64 trillion in 2013

‘Alternatives’ accounted for $7.2 trillion

Within Alternatives, $2.4 trillion was invested in ‘Real Assets’

Forestry is a well-established asset class for institutional investors

Agriculture is now emerging as an ‘asset class’ for investors – an estimated $45bn is invested in farmland

How can we channel some of this long-term capital towards land regeneration?

Source: McKinsey, HighQuest

WSIB approves $300m commitment to Teays River

MainePERS in $200m agri investment

SWF investment in agri grows to $11bn

Black River attracts nearly $1.3bn to food & agri funds

AP2 invests $750m in TIAA-CREF II

What we have learnt about attracting private investment

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1. It is only a concept on paper without great local managers – real farmers and foresters

2. Geography is a big determinant of risk-reward requirements

3. Investors want to know what they are investing in – too many layers and too much complexity can scare them off

4. It is hard to match investors’ desire for scale with the ‘natural’ size of many land regeneration activities

5. Commodity returns should be front and centre – future environmental payments are icing on top