Matti Lehtipuu (left) and Sakari Saarela (right), partners of United
If it can be made from fossils, there’s an increasing chance, thanks to latest scientific and technological advances, that it can be made using low carbon wood- and other bio-based materials. That’s the premise behind the creation of the UB Forest Industry Green Growth Fund (UB FIGG).
Officially launched at the end of January 2023, Finland-based UB FIGG is a private equity fund. Its stated role is to support scaling up of businesses making these new wood-based products –everything from cutting edge new textiles, to bio fuels.
It was set up by United Bankers Plc (UB), the Finnish wealth management and capital services operation. Its €4.4 billion of assets under management include 140,000 ha of forest, the fourth largest private holding in Finland. Consequently, it maintains, over the years, it has built up ‘deep expertise’ in the forestry sector.
“But we’ve reached the point where there is not much more forest in Finland available for UB to buy. That’s where the idea came from to set up a new fund instead to help increase the value of forests. It will do this through investment in non-listed companies in the cluster to grow manufacture of value-added products,” said UB FIGG Managing Partner Matti Lehtipuu.
There are a number of reasons why the world will increasingly need this advanced bio-based product sector, he added. First and foremost there’s the global environmental crisis. The forest and bio-based industries are billed by UB FIGG as key part of the solution in mitigating climate change, helping reduce CO2 emissions by making products to substitute fossil- based and other energy intensive materials.
By substituting finite materials and reducing the need for their extraction and by adding value to the forest, the bio-based supply sector can also slow or halt loss of biodiversity and habitat, says UB FIGG. Moreover, through application of new technologies and know-how, it can help ensure more efficient, less wasteful use of the forest and wider biomaterials resource.
“Globally we still burn 50% of the forest raw material we process,” Mr Lehtipuu said. “And this is not a problem confined to the developing world. In industrialised countries pulp mills, for instance, are still burning the lignin from the production process as fuel.”
To highlight the ‘exciting’ prospects for making better use of bio-based material and reducing GHG emissions in the process, he pointed to development by forest industries giant Stora Enso of a new lignin-derived material to substitute graphite in electric car batteries.
“A modern electric car can contain 100kg of graphite, so this represents a huge opportunity”, said Mr Lehtipuu. “It could increase the value of lignin by a factor of 20.”
The scope of UB FIGG’s investment encompasses producers of textiles, including hygienic and specialty products, that can replace cotton and synthetic materials. In biochemicals and biofuels, the focus will be on technologies that increase value-added use of wood and other bio raw materials to reduce burning directly for energy generation. It may also back producers of value-added biofuels, such as jet fuel.
Wood construction products that ‘tie in carbon for long periods’ are another investment prospect, while in packaging UB FIGG is looking at production of bio-based rigid packaging and wood-based films to replace plastic, plus corrugated packaging that makes more efficient use of raw material than ‘conventional fibre-based’ products.
“We will also invest in other businesses along the forest industry value chain, provided 50% of their turnover comes from the sector,” said Mr Lehtipuu. “That can include other manufacturers using forest or agri-fibre and businesses supporting more efficient transport, use and processing of the material, such as logistics, software and equipment providers.”
Another driver for development of these industries is demand for ‘greener’ products from increasingly climate crisis concerned consumers. There’s also the increasingly emissions-focused regulatory environment evolving to combat the global warming, with governments worldwide pushing the transition to a low carbon economy. That, of course, includes the EU with its Green Deal strategy to make the market carbon neutral by 2050.
UB FIGG has established what it describes as a ‘world class management dream team’. It comprises experts in private equity, investment banking, forest cluster investment and consultancy in forest products, energy and environmental sectors. There is also an advisory board of four, chaired by well-known timber industry figure Sampsa Auvinen, chairman of the European Woodworking Industries Confederation, CEI-Bois.
Initially, 85% of UB FIGG investments will be targeted at Finland and the wider Nordic region, plus German-speaking countries and France, with specific potential also seen in Italy and the UK.
So far, it has raised €100 million in investment commitments. Most of this capital is from Finland, with its anchor investors comprising state-owned Finnish Industry Investment Ltd (Tesi), pension insurance companies Veritas and Elo, the pension fund of the Finnish Broadcasting Company and the Sandvik Pension Fund.
The next phase will be to grow the fund further, with the engagement of the wider international investment community.
“The target for the total size of the fund is €300 million,” said UB FIGG partner Sakari Saarela.
The operation has also developed a ‘solid pipeline of potential initial investments’. The first are expected to come to fruition over the next six months.
UB FIGG stresses that it is not a venture capitalist and will not invest in early stage start-ups.
“We are a growth fund targeting businesses a bit further along in their development,” said Mr Lehtipuu. “They will have a technical readiness level of 6-7, with their pilot and demo phases already defined. We’ll invest €5- 30 million per portfolio company and typically seek a minority stake of 15-30%. We will also demand a board seat to influence company development and strategy.”
The fund will closely scrutinise the sustainability of investment prospects.
“First their raw material has to be PEFC or FSC-certified and we are a signatory of the global Operating Principles for Impact Management standard,” said Mr Saarela. “We comply with the EU’s Sustainable Finance Disclosures Regulation and will report on the total CO2 impact of the fund’s investments.”
UB FIGG is a closed-end fund for professional investors, with a ten-year lifetime and extension option of 24 months. Its target net return is 15%, which it describes as typical for a private equity fund and ‘conservative’.
The operation is optimistic about its prospects. “We’re extremely positive,” said Mr Saarela. “There hasn’t been a specialist player like us in this field before and we’ve had a lot of interest from entrepreneurs and industrial companies in the forest and bio-based materials sector.”
Mr Lehtipuu said he was excited about the opportunities. “We can make a significant contribution to the development of this important industry cluster,” he said.
Looking to the future, beyond the ten-year term of the initial fund, he saw it as a rolling project. “Typically in this business we would start a second, then a third and fourth fund and that will likely happen in this case,” he said.