AAM Investment Group delays fundraise due to coronavirus

The asset manager has pushed back fundraising to Q3 2020 due to due diligence constraints but was able to pull forward the acquisition of a beef property thanks to strong early commitments.

AAM Investment Group managing director Garry Edwards said the firm has delayed fundraising for its Diversified Agriculture Fund by a quarter due to restrictions on movement, but that the covid-19 pandemic has reaffirmed the fundamentals of investing in agriculture.

“The upside of the unfortunate situation of covid-19 is that it’s really shown to investors the strength of investing in mainstream commodities, because [agriculture] is clearly uncorrelated to most of the other market segments out there.

“Probably never in our lifetime have [the sector’s strengths] been more appropriately portrayed than what’s going on right now,” Edwards said.

Edwards was speaking following the Brisbane-headquartered asset manager’s purchase of Terrick Terrick station in Queensland through its Diversified Agriculture Fund, adding beef production to the fund’s portfolio for the first time.

AAM held a first close on DAF in December 2019, surpassing its target of A$60 million ($38 million; €35 million) to raise around A$90 million. The firm expected to conduct a further capital raise in Q2 2020 but this has now been pushed back, partly due to covid-19.

“Because we ended up raising more capital at the start of the year, we were able to pull forward some assets that we had under option for our second capital raise, like Terrick Terrick. There may be a small capital raise that we’ll do in Q2, to opportunistically do some transactions on ancillary assets to the areas we’ve already invested in,” Edwards said.

This would likely be a smaller raise of around A$20 million with a larger capital raise similar to the fund’s first close now pushed back  into Q3 2020. Covid-19 has meant that it is taking longer to carry out due diligence on properties due to movement restrictions. AAM generally secures options on properties before carrying out capital raises to fund the purchases.

AAM acquired the 55,000-hectare Terrick Terrick station, located in the Blackall region of Queensland, in an off-market transaction for an undisclosed sum. The property is a mixed farming operation that has been used most recently for cattle only. Before that, the farm was known for its sheep and wool production.

“We wanted the flexibility of an asset that could fit into both our sheep and beef supply chains,” Edwards said.

“In the long run, Terrick Terrick is designed to be the backgrounding component of our beef production capabilities in Queensland. We will be looking to add to this investment with further breeding, growing, and/or feedlot assets. At the same time, it’s likely that within three years, we’ll end up with sheep in some form on this property, too.”

Terrick Terrick is also certified organic, which Edwards said could create an “additional market opportunity” for AAM.

Edwards added that demand across the four mainstream commodities that the Diversified Agriculture Fund has exposure to – broadacre cropping, sheep, beef and poultry – is growing.

“If we look at many historical institutional mandates, they were focused on a single commodity, so they were exposed to whatever happens in that one commodity. Being across the four mainstream segments takes out a lot of what was previously perceived as volatility,” he said.

“You can still achieve scale and it’s our intention to have scale in meaningful supply chains in each of those segments. We’re producing 20 million chickens a year for [poultry agribusiness] Inghams, for example – these are significant investments.”

AAM earlier this year finalized the purchase of two other seed assets for the fund: a 44.1 percent stake in its existing Southern Cross Poultry Fund and 100 percent ownership of the Sunshine Farms Aggregation, a portfolio of three mixed farming properties in western New South Wales.

The AAM Diversified Agriculture Fund has a target base case distribution yield of 7-8 percent per year and a target base case total return of more than 12 percent per year, according to a fund brochure.