Adveq Real Assets, the new real assets programme at the Swiss fund of funds house, has launched a co-investment platform with 10 institutional investors to form the basis of its agriculture investment strategy.
Adveq will use funds from its Harvested Resources Fund, a 12-year blind limited partnership fund targeting $300 million, to enter into co-investments with this closed group of investors but not every investor on the platform will take part in every deal. Last week Adveq bought 11 almond orchards from Olam Australia alongside four of these institutions — see Adveq closes debut agriculture deal. The platform has a further nine deals in the pipeline.
“One deal fits some, but not all,” said Berry Polmann, head of the Adveq Real Assets Programme.
One member of the platform is Danica Pension, one of the co-investors in the Olam deal. Danica’s alternatives advisor has been looking at agriculture investing for many years and currently invests some of Danica’s portfolio into two agriculture funds. But the firm has found it difficult to find attractive funds and has decided not to pursue fund investment any further, in favour of direct investment.
“After spending some years reviewing the asset class we concluded that very few funds offered terms that we found investable for institutional investors,” said Majken Hauge Johansen, chief portfolio manager at Danske Capital Alternatives, Danica Pension’s alternative investment advisors. “For instance the split of performance fee between investment professionals and operational managers for some of the funds was not reflecting their relative [ability to add value] and did not secure an alignment of interest between the investors and managers.”
Danske also found that the fee structure on many funds was too high, especially if they offered a typical private equity-type structure.
“Investing in funds rather than directly involves a fee drag on the return. Agriculture offers lower return than private equity, for example, and hence cannot sustain the same fee level,” said Charlotte Antonsen Dalgas, portfolio manager at Danske Capital Alternatives.
Adveq’s platform came about after the real assets team interviewed between 400 and 500 institutional investors ahead of establishing the firm’s overall real assets investment offering. During this process, which took place over a four-and-a-half year period, the firm discovered that investors held different opinions about real assets and what they meant and involved. “While many seemed to want the same thing, it was difficult to find common ground on the definition of real assets,” said Gaia Arnaboldi, co-head of the Adveq Real Assets Programme.
After meeting a wide range of global institutions, the Adveq real assets team identified a group of investors that were familiar with agriculture and had already done a lot of work on the topic. These investors also held similar views and principles on the sector.
“The basis of our platform was to create a deal club where our interests were aligned,” said Arnaboldi. “This includes similar views on sustainability and ESG principles, the types of assets of interest and the amount of influence and control we want over our investments. And this way we can do repeat business and know we can trust one another. This lessons execution risk.”
The agriculture platform has nine further co-investment deals in the pipeline, according to Polmann.