Last month, the $74 billion Virginia Retirement System entrusted AgIs Capital with a $150 million commitment to US farmland, its fifth investment in agriculture and timberland.
For AgIs Capital, the move was not unusual. The Boston-headquartered firm, founded in 2013 through a spin-out from Hancock Agricultural Investment Group, tends to receive separate account commitments of more than $100 million, according to senior investment strategist Cody Dahl.
At this stage, most of its LPs are US-based pension funds, and its separate accounts have no end date. The firm, Dahl told Agri Investor, is not looking to raise a fund, because it is “always willing to talk to potential clients.”
AgIs follows what it calls a “farmland-plus” strategy. This corresponds to “an opportunistic strategy that can include private equity investments beyond the farm gate,” Dahl explained. “These are generally private equity investments in related operating, processing or marketing companies.”
Farmland represents 80-90 percent of the portfolio. That includes the land itself, but also some development to it, such as permanent plantings. The balance is made up of private equity investments.
This means AgIs has tiered expectations to agri investment performance. On operated permanent crops, it expects low double-digit returns, depending on the risk associated with the type of crop under production.
Elsewhere in the agri sector, it enters into leases of various durations and tends to expect investments to provide high single-digit returns, Dahl noted. “These can be row or permanent cropland, but to date, we have not invested in any row crops.”
There’s a reason for the latter. “In general the US row crop sector has experienced strong appreciation over the last decade, followed by decreasing farmland values over the last few years. The row crop sector still appears to be pricey to us, but may hold some opportunities,” Dahl said.
Investments further downstream are expected to yield higher returns, in the mid to upper teens.
The segmented nature of the market is something Dahl believes some investors are now understanding rather well.
“Many of our LPs are no longer on agri 101, or even 201. They’re on agri 202, they’re quite sophisticated,” he concluded. “Still, they can vary on their understanding of farmland investments, and AgIS is willing to spend a lot of time educating prospects and getting them comfortable with the asset class.”