• Home
  • News
  • Analysis
  •  
    Regions
    • Australasia
    • Southeast Asia
    • Greater China
    • North Asia
    • South Asia
    • North America
    • Europe
    • Central Asia
    • MENA
  •  
    Funds
    • LPs
    • Buyout
    • Growth
    • Venture
    • Renminbi
    • Secondary
    • Credit/Special Situations
    • Infrastructure
    • Real Estate
  •  
    Investments
    • Buyout
    • Growth
    • Early stage
    • PIPE
    • Credit
  •  
    Exits
    • IPO
    • Open market
    • Trade sale
    • Buyback
  •  
    Sectors
    • Consumer
    • Financials
    • Healthcare
    • Industrials
    • Infrastructure
    • Media
    • Technology
    • Real Estate
  • Events
  • Chinese edition
  • Data & Research
  • Weekly Digest
  • Newsletters
  • Sign in
  • Events
  • Sign in
    • You are currently accessing unquote.com via your Enterprise account.

      If you already have an account please use the link below to sign in.

      If you have any problems with your access or would like to request an individual access account please contact our customer service team.

      Phone: +44 (0)870 240 8859

      Email: customerservices@incisivemedia.com

      • Sign in
     
      • Saved articles
      • Newsletters
      • Account details
      • Contact support
      • Sign out
     
  • Follow us
    • RSS
    • Twitter
    • LinkedIn
    • Newsletters
  • Free Trial
  • Subscribe
  • Weekly Digest
  • Chinese edition
  • Data & Research
    • Latest Data & Research
      2023-china-216x305
      Regional Reports

      The reports review the year's local private equity and venture capital activity and are filled with up-to-date data and intelligence on fundraising, investments, exits and M&A. The regional reports also feature information on key companies.

      Read more
      2016-pevc-cover
      Industry Review

      Asian Private Equity and Venture Capital Review provides an independent overview of the private equity, venture capital and M&A activities in the Asia region. It delivers insights on investments made, capital raised, sector specific figures and more.

      Read more
      AVCJ Database

      AVCJ Database is the ultimate link between Asian dealmakers and those who provide advisory, financial, legal and technological services to the private equity, venture capital and M&A industries. It is packed with facts and figures on more than 153,000 companies and almost 117,000 transactions.

      Read more
AVCJ
AVCJ
  • Home
  • News
  • Analysis
  • Regions
  • Funds
  • Investments
  • Exits
  • Sectors
  • You are currently accessing unquote.com via your Enterprise account.

    If you already have an account please use the link below to sign in.

    If you have any problems with your access or would like to request an individual access account please contact our customer service team.

    Phone: +44 (0)870 240 8859

    Email: customerservices@incisivemedia.com

    • Sign in
 
    • Saved articles
    • Newsletters
    • Account details
    • Contact support
    • Sign out
 
AVCJ
  • Australasia

LP interview: Stafford Capital Partners

stafford-capital-logo
  • Tim Burroughs
  • 26 April 2023
  • Tweet  
  • Facebook  
  • LinkedIn  
  • Google plus  
  • Save this article  
  • Send to  

Founded in Australia, Stafford Capital Partners evolved into a global asset manager focused on timberland and infrastructure secondaries and PE co-investment. ESG is a rising client priority

Prior to embarking on a career in investment management, Daan Oranje, a managing partner at Stafford Capital Partners, worked as a forester. He has been familiar with the mechanics of carbon capture since university. Stafford, which launched a timberland investment programme in 2002, two years after its founding, was also an early mover on carbon credits. It just didn’t really tell anyone.

“We’ve been selling carbon credits and returning revenue to our clients from carbon capture for over a decade. Most of them didn’t know and we were poor in explaining what we were doing. To us, it was nothing more than monetising all the benefits of the asset class,” said Oranje.

“That has largely turned on its head in the last couple of years and certainly in the last 12 months. Institutions are seeking ESG [environment, social, and governance] as an alpha or additionality to their investment case. They can do a plain vanilla data centre as an infrastructure project, or they can do a forestry project and get other benefits such as reducing overall emissions profiles.”

As this choice has become more nuanced – to the point that LPs no longer look at timberland and infrastructure in the same context – Stafford’s offering has evolved. Two funds, each targeting USD 1bn, are being raised in tandem: one in the traditional mould, focused on secondaries and mature projects; and another, positioned as carbon-oriented, that invests directly in greenfield plantations.

The underlying assets of the first investment from the timberland fund, Stafford’s 10th, comprise an established timber-growing business with an existing cash yield of 5%. The carbon fund is currently working with a forest manager to assess the potential acquisition of marginal farming land that might be steep or erodible and may be better suited to tree plantation establishment.

Easing on Australia

It is a quirk of Stafford’s business that, even though the firm was founded in Australia, the LPs that allocate to these funds are unlikely to be Australian. When the timberland strategy launched, most of the investors were Australian, but within a few years their share slipped to 50%, and now Stafford primarily serves clients based in Europe, followed by the US and Asia.

Korea’s National Pension Service (NPS) is a notable recent addition, having made a first foray into timberland with a USD 150m commitment to Stafford’s ninth timberland fund in 2021. NPS noted that timberland is aligned with its strategy to “enhance sustainability” in its global portfolio.

It is a similar story with infrastructure, which Stafford added to the mix in 2012. The firm is currently in the market seeking EUR 1.3bn for its fifth infrastructure fund and expects to get most traction with longstanding supporters in Europe and the US. Asia represents a growing market.

One explanation for the absence of home bias in the LP bases is the high level of sensitivity towards fees in the Australian market. Stafford accesses timberland and infrastructure through co-mingled funds with a heavy emphasis on secondaries – the secondaries-co-investment split in the timberland funds is 80-20, for infrastructure it is 70-30 at most – and the extra layer of fees could be an obstacle.

This isn’t necessarily a problem. John Zaknic, a principal in the infrastructure business, observes that Australian LPs are increasingly pursuing direct deals and their deep pockets are contributing to rising valuations. Stafford likes infrastructure because it brings diversification as well as inflation linkage and a low correlation to equities. Secondaries is also thought to be effective in hot markets.

“Our strategy was born out of looking for core assets in a market that has a lot of capital looking for core assets. We acquire stakes in funds that already hold those assets, effectively winding back the clock on the vintage. We buy in at NAV [net asset value] rather than at market premiums, and then exit to a primaries market that has a lot of capital and pressure on returns,” said Zaknic.

Customisation protocol

Stafford has USD 3bn in assets under management (AUM) in timberland and USD 1.8bn in infrastructure. The third strand, taking overall AUM up to nearly USD 8bn, is private markets. More than 80 investment professionals cover these asset classes, working out of an office network that has expanded from Sydney to Austin, Boston, Curitiba, Frankfurt, London, Rotterdam, Seoul, and Zurich.

The private markets operation, which primarily comprises private equity, has retained some Australian clients, but co-mingled funds are no longer a strategic priority. Two-thirds of the portfolio is in legacy fund-of-funds products; the rest is in co-investment-heavy separately managed accounts (SMAs), and this is what Stafford markets to potential clients.

“A co-mingled fund will have its place, but clients are looking for more customisation and they want to get closer to underlying company exposures. Increasingly, we are sitting down with clients and developing programmes. We have several co-investment programmes running for different clients and focused on different things,” said Daniel Bowden, a private markets partner at Stafford.

At present, there are five SMA clients: two Australian superannuation funds and three US pension funds. They are tailored to meet individual needs – from co-investment only to primaries and secondaries to co-investment and secondaries. One client outsources its entire private equity programme to Stafford. Others use Stafford to fill gaps in broader portfolios.

“Even though Australia’s superannuation industry is consolidating, groups are still building private equity programmes in different ways. It’s a question of how they want to access the market – outsourcing, having an internal team, taking a hybrid approach,” said Bowden.

Stafford has worked with GPs, as a fund investor and as a co-investor, that manage funds of USD 150m to nearly USD 1bn. The sweet spot is around USD 500m. Co-investment cheque sizes have been in the USD 5m-USD 30m range, but now the firm goes up to USD 50m. There have been 62 co-investments to date, with Australia accounting for about half of the USD 600m deployed.

Increasingly, Stafford is looking beyond its home geography, yet Bowden claims that deal access hasn’t been a problem, including when working with managers where there isn’t a relationship on the primaries side.

“Alignment is important,” he explained. “A pre-existing fund relationship is one way of demonstrating that, but it’s not the only way. For example, a manager might make a material contribution to a deal. There have also been situations where, because of the client we represent, managers have been welcoming to us as a co-investor. They see it as an opportunity to get to know the client.”

The ESG angle

ESG is becoming a more significant part of the customisation process. Typically, Stafford uses the UN sustainable development goals (SDGs) as a framework when discussing approaches to ESG and sustainability with clients. Environment has long been a priority – and more so now given the proliferation of net-zero commitments – while social issues are also gaining traction with investors.

Stafford has a standardised process for addressing ESG in co-investments and looks to establish how it corresponds to client agendas. Questions often focus on how the firm tracks progress and delivers certain outcomes. Stafford filters portfolios by NAV and shows the amount assigned to individual SDGs with a view to communicating how an LP’s capital is making a difference in the global economy.

Greater LP scrutiny is also impacting the infrastructure business. “We are tightening our targets with each fund,” said Zaknic. “Fund V will have 0% allocations to coal and to oil and gas, and a minimum 25% in renewables. It has transitioned over time. In the early days, we would have some oil and gas.”

Stafford tries to leverage synergies between the asset classes where there are areas of common interest like ESG. Bowden highlights collaboration on due diligence when co-investments touch on timberland or infrastructure and pooling knowledge with different teams regarding market trends.

Regarding climate, Oranje believes the next challenge facing institutional investors, once they have started tracking emissions and implemented initiatives aimed at lowering them, is how to get to zero. It will require significant carbon offsets or other negative emissions – and the hope is that Stafford’s carbon strategy can contribute.

“It’s not just about giving a carbon credit to offset pollution elsewhere; it’s about offering an investment that is already carbon negative,” Oranje said. “A lot of investors now have to disclose the overall carbon intensity of their portfolios and timber is the only asset class that is negative in this respect. Investors are starting to realise they get a double benefit from investing in timber.”

Stafford will look to preserve this double benefit by investing in projects that offer commercial returns and carbon sequestration. Should changes in how carbon markets are regulated undermine the economics of sequestration, investors would still be able to rely on the core value of the commercial forest investment. In this context, strategies like avoided deforestation do not appeal.

Timberland might be creeping into the mainstream, but Oranje acknowledges that it remains a niche strategy with an investable universe of USD 200bn – a fraction of other asset classes. However, the limited size and high degree of specialisation are essentially a competitive moat. It is not only difficult to internalise coverage; it might also not be worthwhile from a budgeting perspective.

“There is a move towards internalising investment teams within institutions, but timberland is too small for that,” he added. “We still find that by co-mingling a group of like-minded investors we can deliver scale and access.”

  • Tweet  
  • Facebook  
  • LinkedIn  
  • Google plus  
  • Save this article  
  • Send to  
  • Topics
  • Australasia
  • North America
  • Europe
  • LPs
  • Fundraising
  • Infrastructure
  • Australia
  • Stafford Capital Partners
  • Real assets
  • Co-investment

More on Australasia

roller-mark-luke-finn
Insight leads $50m round for Australia's Roller
  • Australasia
  • 10 Nov 2023
simon-feiglin-riverside
Deal focus: Riverside flourishes in Australia
  • Australasia
  • 08 Nov 2023
power-grid-electricity-energy
Energy transition: Getting comfortable
  • Australasia
  • 08 Nov 2023
jean-eric-salata-baring-2019
Q&A: BPEA EQT’s Jean Eric Salata
  • GPs
  • 08 Nov 2023

Latest News

world-hands-globe-climate-esg
Asian GPs slow implementation of ESG policies - survey

Asia-based private equity firms are assigning more dedicated resources to environment, social, and governance (ESG) programmes, but policy changes have slowed in the past 12 months, in part due to concerns raised internally and by LPs, according to a...

  • GPs
  • 10 November 2023
housing-house-home-mortgage
Singapore fintech start-up LXA gets $10m seed round

New Enterprise Associates (NEA) has led a USD 10m seed round for Singapore’s LXA, a financial technology start-up launched by a former Asia senior executive at The Blackstone Group.

  • Southeast Asia
  • 10 November 2023
india-rupee-money-nbfc
India's InCred announces $60m round, claims unicorn status

Indian non-bank lender InCred Financial Services said it has received INR 5bn (USD 60m) at a valuation of at least USD 1bn from unnamed investors including “a global private equity fund.”

  • South Asia
  • 10 November 2023
roller-mark-luke-finn
Insight leads $50m round for Australia's Roller

Insight Partners has led a USD 50m round for Australia’s Roller, a venue management software provider specializing in family fun parks.

  • Australasia
  • 10 November 2023
Back to Top
  • About AVCJ
  • Advertise
  • Contacts
  • About ION Analytics
  • Terms of use
  • Privacy policy
  • Group disclaimer
  • RSS
  • Twitter
  • LinkedIn
  • Newsletters

© Merger Market

© Mergermarket Limited, 10 Queen Street Place, London EC4R 1BE - Company registration number 03879547

Digital publisher of the year 2010 & 2013

Digital publisher of the year 2010 & 2013