Source: Claritas Investimentos

Brazil Fund Bets Big on Eucalyptus Trees as Crises Roil Stocks

  • Claritas’s tree funds have returned 17.5% a year since 2008
  • Firm currently working on project to start third forestry fund

With Brazil’s economic and political crises roiling the nation’s financial markets in recent years, investors have searched far and wide in hopes of hitting upon a money-making venture immune to the turmoil. 

Claritas Investimentos, a Sao Paulo-based money manager, has found just the thing: eucalyptus trees. It began snapping up forestry land in Brazil and selling the pulp produced by the trees during an earlier period of upheaval -- the tumult that rocked global markets in 2008. And the bet has paid off handsomely. Its two tree funds with 635 million reais ($177.8 million) in combined assets have delivered average annual returns of 17.5 percent since 2008, according to Claritas, as pulp prices soared 42 percent from the lowest level in over a decade in 2009. Brazil’s stock market, meanwhile, has saddled investors with average losses of 4.7 percent.

Claritas is now seeking to start a third such fund to withstand Brazil’s longest recession in more than a century. The company, which has 3.5 billion reais of assets under management and counts local pension funds among its clients, grows eucalyptus trees in the Brazilian states of Mato Grosso do Sul, Minas Gerais, Bahia and Tocantins, where it owns a 130,000-hectare (320,000-acre) farm.

“These are assets that grow all year long, no matter if there is a crisis or not,” said Helton Lopes, a forestry engineer hired by Claritas three years ago to help manage the funds.

From Claritas’s office on Av. Brigadeiro Faria Lima in Sao Paulo’s main financial district, Chief Executive Officer Carlos Ambrosio and Lopes map out parts of the country where they believe it’s viable to grow the trees. They sell the pulp to Brazilian companies like Suzano Papel e Celulose SA. The pulp-exporting giants have been among the biggest beneficiaries of the 38 percent plunge in Brazil’s currency over the past two years. The currency was up 0.3 percent this week.

Suzano didn’t immediately reply to an e-mail and phone call seeking comment on its pulp purchases.

Latin America’s biggest country offers certain advantages, according to Ambrosio. For one, eucalyptus trees in Brazil take five to seven years to reach a size that allows them to be harvested. That compares with a seven to 10-year average in the U.S. and more than 15 years in Europe. Brazil also gets plenty of rainfall and boasts sophisticated bio-engineering technologies, Ambrosio said.

“We aimed to come up with a diversification alternative for international and institutional clients,” he said in an interview at the firm’s office. Claritas initially considered investing in soy and sugarcane, “but the crops ruin if you don’t pick them. That doesn’t happen with timberland. If the economy is not doing well, you simply don’t cut the tree down. They will continue growing.”

Claritas isn’t alone. Last year, Brazilian investment bank BTG Pactual SA opened an $860 million fund to invest in forestry assets in the country and other parts of Latin America. In 2012, Sao Paulo-based Lacan Invesmentos started a 200 million reais fund to invest in similar assets.

Brazil is a natural global leader when it comes to agricultural investments, and the pulp and paper industry is a "winning sector" these days, said Bernardo Rodarte, who oversees 1 billion reais of assets at Sita Corretora.

"These are companies that are doing very well due mostly to the drop of the real, and that trend should not change in the near term," he said in a telephone interview from Belo Horizonte, Brazil.

Claritas’s Lopes said the firm’s third tree fund, which will have about 300 million reais in assets, will focus on the southern part of Brazil.

“The forest produces,” he said. “But you have to know how to manage it well. It takes knowledge and dedication.”

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