Ag investors ‘well placed in medium term’ during coronavirus lockdown

Riparian Capital Partners managing partner Michael Blakeney said there is ‘no shortage of opportunities’ for investors but some processes may take a longer to execute due to current restrictions.

Australian agriculture should be “reasonably resilient” during the coronavirus-induced economic downturn, but some sub-sectors will be harder hit than others, Riparian Capital Partners has said.

In a report titled The impact of covid-19 on agriculture, the Brisbane-headquartered fund manager said market participants with diversified portfolios should be “well placed in the medium term” but that the “full impact on the operational capacity of supply chains is still not clear”.

Speaking to Agri Investor following the publication of the report, the firm’s managing partner Michael Blakeney said the outlook for certain discretionary commodities could prove to be more challenging than for other staple goods.

“Agriculture is not going to be immune and different sectors will see different levels of impacts within the industry,” he said. “We’re already seeing that with more negative impacts on the more discretionary or industrial products such, as cotton or sugar, whereas what we class as non-durables, like wheat and soy, seem to be holding up quite well to date.

“But none of us have a clear view on what the future looks like – there are more twists and turns to come.”

Analysis carried out by Riparian Capital Partners found the prices of commodities, such as cotton and sugar, generally fell by much greater amounts than those for staple goods, such as corn and soybeans, during similar periods of recession.

“Rudimentary analysis of agricultural commodity futures markets between 1990 and 2009 suggests that the impact of economic contractions varies across commodities, and that prices of inputs used in the production of durable items [such as cotton] and discretionary items [such as sugar] typically decreased by more than non-durable, non-discretionary commodities of corn and soybeans,” the firm’s report said.

Despite the uncertainty, Blakeney said Riparian has not seen any drop in interest for opportunities in Australian agriculture.

“We certainly acknowledge that investors are managing existing exposures, but they’re still keen to have conversations on new opportunities and strategies,” he said. “How long they take to execute on those is the unknown at this stage.”

The fundraising environment has become “more challenging”, he added, because of those extended timeframes.

“It would be disingenuous to say nothing’s changed,” Blakeney said. “You’ve got LPs who are focused on managing existing exposures, and you’ve got limitations with due diligence processes, but we haven’t had any of our processes stop. If you have good, long-term relationships with your LPs, some of that limitation is reduced, as they have trust in your track record, team and approach.”

LPs are also on the lookout for distressed opportunities, he said, although agriculture may not provide as many of these types of deals as other affected sectors.

Multiple sources told Agri Investor last month that they eventually expect to see “significant” buying opportunities in Australian ag.

“Some LPs have said they’ll be interested in distressed assets because they want to explore discounts,” Blakeney said. “But we believe this sector isn’t the one [in which] you’ll find broad cross-sectoral distress. We’ve already been through two to three years of severe weather conditions, so distressed assets have typically already moved through the market.

“There is certainly no shortage of opportunities, but some of the practicalities – things like doing due diligence, moving people around – will likely slow down execution on a number of them.”

Riparian Capital Partners was launched in 2019 with plans to launch a water, agriculture and food fund as well as a strategy dedicated to investing in water. Blakeney declined to comment on the progress of specific strategies.