Alaska Retirement boosts permanent crop target, opens to direct

ARMB real assets investment manager Nicholas Orr stresses row crops’ limited return potential in calling for changes to the pension’s $852m farmland portfolio.

Alaska Retirement Management Board’s Board of Trustees has backed plans to increase the role of direct permanent crop investments in its $852 million farmland portfolio.

Two recommendations for the $32.5 billion pension’s agricultural portfolio were approved at the meeting, Stephanie Alexander, a liaison officer with ARMB, told Agri Investor.

One changed the pension’s target farmland portfolio composition from an 80/20 split between row and permanent crops to a 60/40 split. The other saw the removal of a prohibition on investment in directly-operated permanent crop properties.

ARMB plans to have a real assets consultant in place by July to implement the changes.

The penion’s farmland investments are held in separate accounts established with UBS Agrivest (now UBS Farmland Investors) and Hancock Agricultural Investing Group. The ARMB, which began investing in farmland in 2004, valued its account with Hancock at $267 million and its account with UBS at $580.5 million, as of the end of October 2018, according to materials from the meeting.

In March 2015, then ARMB chief investment officer Gary Bader told Agri Investor that long-term plans then called a for real assets portfolio equivalent to 17 percent of the overall fund, made up of 35 percent real estate, 25 percent farmland, 15 percent timberland and 12.5 percent devoted to both infrastructure and energy-related projects.

ARMB real assets investment manager Nicholas Orr told the December meeting that row crop returns were “excellent” but likely to be challenged by rising interest rates.

Orr also questioned the belief that row crops are closer to the consumer and offer the capacity to switch crops.

“Row crop price appreciation has closely tracked interest rates,” Orr wrote. “With interest rates rising or staying flat, row crop price appreciation will be challenged.”

Orr recommended a move into a permanent crop space he described as “dominated” by directly-operated properties that offer investors higher returns and visibility.

“In some cases, it may be hard to know what improvements were made to trees/vines, making it difficult for farmers to determine an appropriate leasing price,” Orr wrote. “The long duration of return on capital expenditures periodically required for permanent properties.”