Stockholm (HedgeNordic) – Historically, private equity has outperformed public markets over the long term. While the allure of high returns in private equity is strong, actual performance can vary significantly depending on the strategy, expertise, and market conditions. Asset managers with deep knowledge in a specific niche are often better positioned to capitalize on unique opportunities and navigate challenges effectively. United Bankers, a Finnish asset manager with a proven track record in forestry investments, has partnered with a team of forest industry experts to create UB Forest Industry Green Growth Fund (UB FIGG).

“UB has always had a strong position in the fund management business related to forest assets,” says David Walker, a senior partner behind UB’s private equity fund, UB Forest Industry Green Growth Fund (UB FIGG). “It was a natural progression for us to create a new private equity fund focused on the forest industry,” he adds. The team began working on the fund in 2022, completing its first close in January 2023 with over €100 million in investment commitments.

“It was a natural progression for us to create a new private equity fund focused on the forest industry.”

“The idea is to support innovation on the industrial side by providing growth capital and support companies exploring bio-based solutions in areas like packaging, chemicals, and building materials,” explains Walker. The fund’s central theme is replacing fossil-based materials with bio-based alternatives. “While fossil-based raw materials will always be part of our lives, we feel there is a huge opportunity to reduce our dependency on fossil-based materials and create bio-based alternatives,” says Walker, who has been associated with forest industries for more than 40 years. UB FIGG operates under the slogan, “Everything that’s made from fossils today can be made from wood tomorrow.”

“Everything that’s made from fossils today can be made from wood tomorrow.”

Walker highlights the long history of evolution in the Nordic forest industries, which evolved from processing forest resources into wood products and pulp, then paper products, and then packaging products. “The evolution has always been about adding value to the fibre,” emphasizes Walker. “The current phase of this evolution is about adding value particularly to the waste streams of the industry,” says Walker, “and this is particularly where we are focused.”

Traditionally, waste fibre from industrial processes was burned to generate bioenergy. “This has been beneficial, reducing dependence on fossil fuels,” notes Walker. “But some of these waste streams can be turned into much higher value-added products with an even greater environmental impact,” he continues. “We are focused on this higher value impact with our investments.” While UB FIGG is branded as a forest industry green fund, the team can also selectively invest in bio-based materials beyond forestry. For instance, they have invested in a German company, Traceless, which uses corn waste to make bio-based coatings and packaging, and in Notpla, which creates similar products from seaweed. “The theme, however, remains the same – the replacement of fossil-based raw materials with bio-based alternatives.”

“The theme, however, remains the same – the replacement of fossil-based raw materials with bio-based alternatives.”

The fund’s investment strategy targets three main sectors: packaging and hygiene (driven by plastic replacement), biochemicals (removing fossil-based inputs from chemicals and replacing them with bio-alternatives), and building materials (promoting wood-based materials over ceramics, steel, and concrete). UB FIGG has made five investments across these sectors, with a total invested value of around €33 million.

UB FIGG’s Typical Investment

Having made five investments to date, the fund’s typical investment size ranges from €5 million to €10 million, with the potential to increase to €20 million for follow-on investments. “We invest in growth-stage opportunities, so our investment commitments are larger than those of VC-style investors, for instance,” explains Walker. UB FIGG aims to maintain a concentrated portfolio, allowing the team to engage with and contribute actively to each business. “We take a board seat for every investment and play an active role in the strategy and development of the business,” says Walker.

One investment Walker has been personally involved in from the start is Paptic, a Finnish scale-up addressing global plastic pollution and climate change with a wood-based flexible packaging material. “The material is based on cellulosic fibres, has the properties similar to plastic, but is renewable, recyclable, lightweight, durable, strong and soft,” Walker explains. The material is used in everything from carrier bags to electronics packaging and food and vegetable packaging. “Paptic is about getting plastic products out of everyday use to reduce waste and enhance recyclability,” says Walker. The funding led by UB FIGG supported product development, production partnerships, and the availability of Paptic materials globally. “The team at Paptic is great and very motivated to achieve the goals of the company and I am active on the Board helping them to continue to grow the business,” Walker adds.

Niche Expertise Drives Success

Private equity investing in such specialized industries requires both experience and deep expertise. “When we set up the fund, our key principle was to build a team with deep experience in both investment and the forest industries,” Walker emphasizes. “We felt this sector expertise was essential – as we were a first-time fund – to give investors the confidence that we knew what we were doing.”

In addition to David Walker, UB FIGG has three other operating partners, including Matti Lehtipuu, former CEO of a publicly listed forest products company; Sakari Saarela, an investment banker specializing in the sector; and Rainer Haggblom, who has decades of experience as an advisor to the forest industry, and globally, very well known as an authority on the sector. Additionally, the fund has a four-person advisory board, with members from Finland, Sweden, Germany, and Latvia, all of whom have had operational and investment roles in the sector. “We built our team and analysts, associates, and managers to support the fund’s operations,” says Walker.

“When we set up the fund, our key principle was to build a team with deep experience in both investment and the forest industries. We felt this sector expertise was essential – as we were a first-time fund – to give investors the confidence that we knew what we were doing.”

According to Walker, the team’s expertise and network enable them to address a key challenge for private businesses in this niche: weak market traction and slow sales growth. “While many companies have great ideas and solid industrial processes, market traction can be weak, leading to slow sales growth,” says Walker. “We look at how we can help support market traction through our networks, and we also help companies focus more on the fundamental cost competitiveness of their products,” he advises. “Some companies build up huge ‘research-like’ organizations without thinking enough about commercial traction and relationships with customers.”

Article 8 and Sustainability Drive

UB FIGG’s mission to replace fossil-based materials with bio-based alternatives is rooted in a clear sustainability agenda. The fund is classified as an Article 8 fund, “because of the clarity of the criteria, which we ensure we deliver on,” according to Walker. “All our investments go through a strict ESG review process, and we establish very clear reporting requirements for companies on their environmental performance,” he explains. UB FIGG’s investment committee also includes an ESG specialist who works closely with portfolio companies to ensure they meet these objectives.

“Public markets can be too short-term in their focus to support environmental breakthroughs, making private equity – especially at the growth stage – essential to support change to help achieve environmental objectives.”

Walker stresses the importance of private equity in driving sustainability. “Improving environmental performance requires both investment and patience,” he notes. “Public markets can be too short-term in their focus to support environmental breakthroughs, making private equity – especially at the growth stage – essential to support change to help achieve environmental objectives.” The team believes industry expertise is essential in finding competitive solutions to real-world problems. “That is why we established the fund and why we think it will continue to be successful.”

This article is part of HedgeNordic’s “Private Markets” publication.