The New Mexico State Investment Council (NMSIC) made a commitment of up to $50 million to Agricultural Capital Management (ACM) Fund II earlier this month, the pension’s spokesperson confirmed to Agri Investor.
ACM II was launched last year with a $400 million target and plans to solicit commitments from investors across 42 states, according to a July regulatory filing. The fund had raised $286.3 million at of the end of 2016, according to an ACM investor presentation.
Focused on permanent crop farmland and midstream processing assets in the western US, ACM II will invest in citrus, hazelnuts, and both traditional and organic blueberries, according to a memo from NMSIC director of real return and real estate Paul Chapman and analyst Melanie Dubin, who added that 25 percent of the fund’s investments will be devoted to midstream packing, processing and marketing.
Chapman and Dubin noted ACM’s commitment to mitigating environmental and social risks and that NMSIC staff had visited several of the fund’s existing farm and packaging assets while considering its investment.
“The ACM II offering would increase the portfolio’s exposure geographically to the United States, and by crop type to permanent crops,” Chapman and Dubin wrote. “The climate zones and existing infrastructure in the fund’s target regions are uniquely suited to the permanent crop types experiencing high demand growth domestically and abroad.”
The memo attributed “dampened” returns on ACM’s predecessor fund to a J-curve effect inherent to investments in new permanent crops that take three to five years to reach productivity, adding that ACM II will target returns in the low teens with a significant income component.
The Townsend Group, which consulted the sovereign wealth fund on its investment, noted in its recommendation that returns for permanent crops, such as those Fund II will invest in, had exceeded those of row crops over the course of the past one, three and five years.
“The manager is one of the few agricultural investment firms to successfully bring together high-quality farming operations and successful agribusiness experience,” Townsend wrote. “The team has many years of experience growing the crops that the fund is targeting, and successfully executed its first fund’s investment strategy to date.”
ACM’s first fund closed on $250 million in early 2015 with investors including the Washington State Investment Board, the Maine Public Employees Retirement System and Aether Investment Partners. It invested approximately $200 million as of the third quarter of 2016, including 7,000 acres of farmland and two midstream assets, according to Townsend.
NMSIC is a $21 billion sovereign wealth fund created to fund education in New Mexico. Real assets, including agriculture, make up three quarters of the real return allocation that accounts for 12 percent of the fund’s overall portfolio, according to Chapman and Dubin’s memo.
As of June 2016, the fund had $325 million in approved commitments to agriculture, including a $200 million commitment to the TIAA-CREF Global Ag Fund, a $75 million commitment to the Brookfield Brazil Ag II Fund and a $50 million commitment to NGP Agribusiness Follow-On Fund.
Including its ACM II investment, 60 percent of NMSIC’s overall agricultural investments are devoted to row crops, with 24 percent focused on permanent crops and 16 percent devoted to midstream investments. Geographically, after the investment in ACM II, 45 percent of the fund’s overall agricultural portfolio is located in the US, 40 percent is devoted to Latin American investments and 15 percent in Australian or New Zealand.