ACM’s Hurlbut on closing a first-time fund

Last week, ACM Permanent Crops fund closed on $250 million ahead of its $200 million target. The fund attracted pure institutional investment from investors spanning the globe including a variety of US institutions. The fund invests into permanent crops such as berries, citrus and grapes and will pursue a vertically integrated investment model. Here Rob Hurlbut, principal at Equilibrium Capital, the fund platform, describes the fundraising process.

What were the main challenges for investors considering the fund?

The single most common objection was the fact that this is a first-time fund and that is often the case because some institutional investors have restrictions on investing into first-time funds.

That said, in a number of cases we were still able to overcome that, and that is down to the strength of the team we have with years of operating and management experience – a fundamental requirement to execute the strategy we have put together.

Another interesting feature of the fundraising process was that from the time we started the process to the end, it felt like investors’ understanding of how agri works grew. Or they got a better feeling for it. Perhaps it was increased awareness but people also understood the premise around sustainable alpha so that was very positive to see because that was certainly not the case initially.

Which institutional departments were you speaking to?

Almost universally we were talking to the real assets team. We did not speak to any private equity folk.

What were investors most excited about in committing to ACM?

It was two things really. The vertical integration of the farming assets into midstream processing assets. This is very closely connected to risk mitigation and the delivery of returns. Given the nature of permanent crops and the relatively high volatility in production and pricing of them, it is important real assets investors to have a strategy that can mitigate that.

Secondly, I think having a very strong team that will operate the assets during the life of the fund. It is really important to deliver total returns; sustainable and organic permanent crops do not lend themselves to a buy-and-lease investment model. That is fundamental to the approach we took.

Do you have a key man clause in the fund’s contract should you or any other key manager leave?

Yes. We didn’t want to break the mould in terms of private equity fund structure.

What is your acquisition pipeline looking like?

We are heavily engaged in working through a compelling pipeline across four different crop types: citrus, table grapes, blueberries and hazelnuts. Our initial work has been spread across Oregon’s Willamette Valley for blueberries and California for citrus and table grapes.

We feel good about the nature of the deals we are working on. We have four years from the first close (last February) to deploy the capital but given what we are seeing, there is an opportunity to move significantly faster.

What types of midstream assets will you be buying?

The pipeline also includes processing assets. We are open to all considerations when building the vertical model so will consider assets that are already operational that meet the requirements of that marketplace but we will also consider building the assets needed.

One of the great things about investing into this part of the value chain is the potential to create jobs in certain communities and hopefully invigorate some rural economies. There is a big social component to what we are doing. We are not just creating healthy food products; there is the social reality of building jobs in a community.