Ag veteran plans open-ended fund at Insight

Former Aquila Capital managing partner Detlef Schoen tells Agri Investor that his new role as head of real assets for Insight Investment will focus on the creation of an open-ended, diversified agriculture vehicle.

Detlef Schoen has been hired as head of real assets by London-headquartered asset manager Insight Investment, where he plans to create an open-ended agriculture fund primarily targeting European pensions and insurance companies.

Schoen will replace Reza Vishkai, who will remain at Insight in a consultative role. Schoen, who relocated from Australia to London for the role, will report to chief executive Abdallah Nauphal in a position that will see him oversee the firm’s existing farmland fund and work on developing its successor.

He joins Insight after seven years as an independent consultant working under the name DS Green Assets, through which he ran an ag investment platform for Aquila Capital from 2007 through 2015 and worked with Aqueduct Investment Partners on an ag-focused fund of funds from October 2016 until May. Schoen previously spent nine years with Cargill, serving as country manager for Germany and head of its European grains business, before joining Nidera for a brief stint as global head of grain trading in Rotterdam.

Insight’s farmland fund is about 90 percent deployed with four years until the end of its life, according to Schoen, who told Agri Investor that the true focus of his new role is on adapting the “investment style” of the firm’s next fund to the ways that the market has evolved since the existing vehicle closed on $220 million in 2011.

Appetite for longer tenures

Schoen highlighted changes in the interest rate and pension liability environments, as well as the morphing of sustainability and ESG considerations “from a nice-to-have to a must-have” as among forces he will look to adapt Insight’s next vehicle to. Most importantly, he said, the revamped approach will seek to address growing investor demand for longer-duration exposure to farmland.

“All of us that went into the space eight, nine, 10 years ago, in order to get anybody interested in what at that time was still a pioneering asset class, wanted to offer reasonably high returns, and the best way to do that was in the private equity, closed-end model,” Schoen said. “On balance, an open-ended structure with a five-year lockup and a liquidity window every two years thereafter is more attractive to investors.”

“What was a fantastic model for a number of years has become a lot less fantastic”
Detlef Schoen, Insight Investment

Schoen explained that the immediate aftermath of commodity price spikes in 2009 and 2011 saw a rise in farmland values and large funds focused on building scale supported by predictions of chronic food shortages in what amounted to a “golden era of the passive landlord model.” The years since, he said, have witnessed a shift focused on increasing yields through technologies that have had the effect, among others, of narrowing the premium of farm EBITDA over farm lease.

“What was a fantastic model for a number of years has become a lot less fantastic,” he said. “We’re seeing the renaissance of the owner/operator model because in a normal scenario, it is very rare that you have a farm EBITDA that allows you to pay a massive lease to the landlord and still make money as an operator.”

Real estate model

Schoen said the open-ended structure he is planning to offer at Insight will mimic one long used in real estate that has recently been applied to agriculture by Fiera Comox. Antoine Bisson-McLernon, Fiera Comox’s chief executive, told Agri Investor in August that the firm’s open-ended fund, which launched on June 30 and reached a C$200 million first close in August, could bring in an additional C$300 million by the end of 2017.

The open-ended vehicle being developed by Insight, according to Schoen, may offer a 4 percent cash return and 8 percent IRRs post fees and post tax. He did not say when the firm plans to raise the vehicle, but did say that while Insight is certainly interested enlisting US LPs, the investor focus is likely to be on European pension funds, family offices insurance companies.

Geographically, Schoen said, the fund will concentrate on three regions: Eastern Europe (Poland and Romania), Latin America (Chile, Peru and Colombia), and Australia/ New Zealand with a strategy he summarized as “mainstream farming” focused on cattle in Australia, dairy in Chile and arable crops in Eastern Europe.

Given Insight’s specialization in the provision of debt and the enormous capital needs of agriculture, Schoen said agricultural credit was also an avenue he hopes to pursue, though plans are still in their early stages.