AXA alternative investments arm in talks with investors for new nature-based fund

AXA is in talks with investors for a new nature-based fund but says uncertainty around benchmarking of emerging asset classes is holding back green investment.

AXA IM Alts acquired a 24,000ha forestry plantation in the Green Triangle in 2021.

The alternative investment arm of financial services giant AXA is in talks with local investors for a new nature-based fund, but says converting institutional interest into investment remains a challenge due to uncertainty around the categorisation and benchmarking of emerging asset classes in the green economy.

AXA IM Alts launched the fund last year with the €500m backing of its parent company, and is seeking to raise at least €200m ($336m) more to deploy on projects that can monetise carbon credits mainly through forest restoration and conservation ­activities.

Alexandre Martin-Min, who heads up AXA IM Alts’ new “natural capital” strategy, met several Australian super funds and institutional investors during a visit from Paris last week to explain the strategy behind the fund.

He said while there was a lot of interest, there were also many questions about how investments from super funds would be viewed by local regulators.

“Carbon credits or green investments are new asset classes and they need some benchmarking to understand how they’re ­positioned versus other asset classes in the allocations,” Mr Martin-Min said.

“Specifically, for the APRA-regulated super funds, that’s the APRA performance benchmark, which is a challenge at the ­moment for the investors here.

“There’s a huge amount of interest in the strategy. I think almost everyone has, if not a carbon reduction target, a net zero target within the next 20-30 years, and this type of strategy is a powerful way of helping achieve that.

“But the challenge is it’s an unknown asset class at the moment. There isn’t much institutional backing, which is why it’s so significant AXA’s put €500m into this strategy.

“And people don’t understand what the return drivers are very well. And then they don’t know where it fits in the portfolio.”

There is a growing concern in the superannuation sector that APRA’s performance benchmarking framework, designed to weed out underperforming funds, is deterring super funds from ethical and environmental investing because it often takes longer to generate the sorts of returns on offer in other sectors, including fossil fuels.

Mr Martin-Min said there was a role for regulators and investors to play in overcoming the potential unintended consequences of the current regime.

“There is the part we can deal with which is to provide the numbers, track information about the returns we can deliver, and there’s the part on the regulation side, in terms of the obligations to reduce the carbon footprint of portfolios or compensations,” he said.

During his visit Mr Martin-Min also took time out to visit AXA IM Alts’ 24,000ha pine plantation in the “Green Triangle” region.

It acquired the plantation for about $775m in 2021, marking its first investment in Australian forestry. Most of the logs from the estate are used for structural timber in construction, and for pallets, with a small amount used to make woodchips.

Mr Martin-Min said AXA IM Alts was interested in adding to its forestry holdings in the Green Triangle – which covers about 350,000ha of forestry land in southeast South Australia and southwest Victoria.

The interest comes amid a decline in forestry plantations and ahead of native logging bans in Victoria and Western Australia.

According to figures recently released by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), the area covered by forestry plantations has fallen to its smallest level in 20 years, sparking fears of a shortage of trees to meet future demand for wood and wood-derived products.