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Advantage launches USDA, Farm Credit-backed fund

Advantage Capital Partners will invest a $150m fund targeting US small businesses across the agriculture value chain.

A consortium of eight Farm Credit institutions, lenders that are a member of the Farm Credit System in the US, has committed to a private equity agribusiness fund under an initiative from the US Department of Agriculture (USDA) to improve funding to the agriculture sector.

The fund has received commitments for $147 million so far. Seven of the eight lenders committed $20 million each — AgStar, AgriBank, Capital Farm Credit, CoBank, Farm Credit Bank of Texas, Farm Credit Services of America and Farm Credit Mid-America — the eighth, United FCS, committed $3 million and Advantage Capital has committed $4.5 million of its own capital.

The USDA and Farm Credit System selected Advantage Capital Partners, a growth capital and small business finance firm, to invest $150 million into a geographically-diverse selection of small businesses working across the agriculture value chain; these are businesses that often struggle to obtain loans, according to John Monson, senior vice president for investments in rural America at AgStar Financial Services, one of the Farm Credit institutions involved.

The firm was mandated to launch the 10-year Advantage Capital Agribusiness Fund in April 2013 as part of a lengthy process to get the scheme going, according to Monson.

“The USDA initiated discussions with the Farm Credit System 29 months ago to address the need among local agribusinesses for capital,” Monson told Agri Investor. “We did a tremendous amount of due diligence in the first 12 months on what investors are looking for, what GPs are looking for and the legal issues tied to it.”

Advantage was chosen out of 55 identified potential management firms, 22 of which submitted applications for the mandate, and five that were invited for interview. The USDA and Farm Credit System chose Advantage Capital “for its deep passion and commitment to rural America and strong portfolio performance”, said Monson. “The fact it has skin in the game is obviously critical too,” he added.

The fund will be formed as a Rural Business Investment Company (RBIC) with a conditional license from the USDA under its Rural Business Investment Scheme (RBIC). While the USDA will not have any involvement with the fund on a day-to-day basis, it will make periodic checks on the investment portfolio to ensure they comply with RBIC goals — to promote economic development in rural America.

The fund still needs to get the green light from the USDA by way of the RBIC licence and to ramp up its pipeline but it should be ready to go by the end of the summer, said Monson.

The fund will look at co-investing into agribusinesses alongside other investors. “We are looking at all options,” said Monson. “Co-investment is the way the network works and is great to create additional value so it is definitely part of the strategy.”

Promoting private equity investment by the Farm Credit System has been an initiative of the USDA since 2008 when it relaxed regulations to allow them to invest their own capital into agribusinesses needing investment but largely unable to obtain loans.

“For many of them [private] equity is their best or only option,” said Monson.