Panelists at the forum examined the factors influencing agriculture investment decisions among LPs
Speakers at the Agri Investor Forum in Chicago this week compared notes on the considerations and challenges investment boards face when seeking opportunities in agriculture.
Because agriculture is a relatively new asset class for LPs, there aren’t many managers with track records long enough to make institutional investors comfortable, they said.
Aqueduct Investment Partners co-founder Peter Roney noted that many agricultural funds are small and focused on niche strategies, which can make it difficult to convince investment boards to make allocations.
He also said that comparisons between the returns of agricultural funds and those of more traditional private equity returns could lead to disappointment.
“You have to try and convince institutional investors about where agriculture fits in an institutional portfolio and, very importantly, how it meets all the institutional tick boxes that typical consultants need to get things into a portfolio,” Roney said.
There are two main categories of institutional investors in the sector, according to Red Reef Partners managing partner Suzanne Petrela, those seeking pure returns and those also motivated by a desire for protection from inflation.
“Most of our investors are long-term oriented, large institutions or ultra high-net-worth family offices that care about capital preservation and protection from what could be a very scary inflationary environment in our lifetime,” she said. “Solid cash flow, growth income and good prospects for capital appreciation is very hard to achieve outside of land.”
Mark Canavan, senior portfolio manager of the New Mexico Educational Retirement Board, also stressed the defensive nature of investments in agriculture, calling his decision not to invest in the sector in 2008 the biggest mistake of his more than 30-year career.
Regarding return expectations, Canavan said that while he knows of LPs investing in projects offering returns as low as 2 percent, he focuses on opportunities that offer between 4-6 percent on the low end to 10-12 percent for some value-add permanent planting assets.
Beyond returns, environmental and social governance issues related to investments in the sector are increasingly of interest among investors, noted Agustin Araya of Cordillera Investment Partners.
Each sub-sector of the industry carries its own set of opportunities and risks, panelists noted. For instance, water would emerge as one theme. Canavan called water an “obvious play”, while Araya noted that the water market is largely misunderstood and will inevitably create winners and losers, particularly in California.
“We see water as a significant risk, but also a major opportunity,” he said.