Adveq Real Assets, the new real assets programme at the Swiss fund of funds house, bought 11 almond orchards in Australia for A$211 million ($190 million; €139 million) alongside four institutional investors in February — one of the largest farmland transactions in the last 12 months, according to Adveq research.
The deal represents the first investment for Adveq’s Harvested Resources Fund a 12-year blind fund. Its first close on January 27 came after commitments from 10 investors. The fund has the option to extend for up-to three more years at LPs’ discretion. The investment period is expected to be four years and the $300 million hard cap reached by May. It will charge investors an annual fee of between 40 and 60 basis points and a carry of eight percent.
Municipal Employees’ Retirement System of Michigan, Danica Pension, Wake Forest University endowment fund and an undisclosed UK institution co-invested in the orchards.
The deal’s closure is a result of 12 months of negotiations with Olam International, a supply chain manager and agricultural products processing company, which will continue to operate the 18,000 hectares of almond orchards in Victoria, Australia under an 18-year lease-back agreement. Additional financing was provided by an Australian bank although further details were not disclosed.
The acquisition follows more than four years of research into almond farming and farmland more generally by Adveq’s real assets team, according to Berry Polmann, head of the Adveq Real Assets Programme.
The team started looking at almond orchards in California four-and-a-half years ago attracted by the industry’s investment properties. “Orchards of the right age will perform like a bond in your portfolio,” said Polmann. “Yields can go up and down, especially in California where there is often lacking water, but then almond prices will be higher. It is a very stable and naturally yielding investment that can be long term, and it is sustainable.”
Finding available assets in California proved difficult, however, and any opportunities that arose during the four-year period were inappropriate in terms of age, skill, scale and pricing, added Polmann.
The potential Olam transaction emerged in the first half of 2013 when the Singapore-headquartered firm made a pledge to shareholders to divest of some of its assets, moving further in line with its “asset-light” competitors, according to Polmann.
“This transaction is part of our larger strategy that we announced in April 2013 where we want to achieve a balance between profitable growth and cash flow generation,” Aditya Renjen, Olam’s general manager of investor relations told Agri Investor in an emailed statement. “The transaction allows us to retain the production economics of the entire almond harvest from these orchards while reducing our fixed capital (land, trees and farming infrastructure) thereby enhancing returns of the project.”
The scale and location of the orchards were also particularly appealing and “Olam’s position gave us the perfect opportunity to chase the assets,” said Polmann. The orchards account for around 50 percent of Australia’s almond production and 3.5 percent of world production representing over $5 billion in 2013, according to the Almond Board of California. The orchards are next to the Murray River providing plenty of water, a common problem for almond farmers in California, according to said Gaia Arnaboldi, co-head of the Adveq Real Assets Programme, and they produce stock out of season, six months after the harvest in California giving them a reasonable premium.
The institutional investor partnerships were formed over the four-and-a-half year period when Polmann and his colleagues on the real assets team identified 10 like-minded investors to co-invest in agriculture deals on the real assets platform. The team currently has nine further deals in the pipeline. For more please read Adveq creates agriculture co-investment platform.