AP2’s Stromblad: ‘We should not look for the highest possible returns in the world’

The head of external management at AP Fonden 2, which committed $750m to a TIAA fund in 2014, tells Agri Investor why the Swedish pension favors core farmland investments.


The head of external management at AP Fonden 2, which committed $750m to a TIAA fund in 2014, tells Agri Investor why the Swedish pension favors core farmland investments.

Institutional investors would be well-served to factor in ESG considerations when classifying farmland investments as “core” or “non-core,” according to the head of external management at $37 billion Swedish pension AP Fonden 2.

Anders Stromblad told Agri Investor that the fund first began to think about investing in agriculture during the aftermath of the global financial crisis, as it assessed damage to its portfolio resulting from its significant exposure to global equities.

“We said to ourselves, ‘If we could, over the long term, get approximately the same return as we could get from public, developed market equities, with very low, if any, leverage on those assets, it would be very good for the portfolio. That was the thesis when we went into this,” he said.

In the years since, the fund has built what Stromblad called a “balanced” portfolio of agricultural investments in both agriculture and timber. The fund’s investments have included a $750 million commitment to TIAA-CREFF Global Agriculture II, a $67.9 million commitment to the TIAA European Farmland Fund and investments in TIAA timber management subsidiary GreenWood Resources Timber Company, Molpus Timberlands Management and New Forests Australian New Zealand Forest Fund.

AP2’s agricultural investments are housed within its real estate portfolio, and Stromblad borrowed language from that sector when addressing the fund’s return expectations in farmland investments.

“When we discussed investing in farmland, we said that we should not look for the highest possible returns in the world; we should do core farmland,” Stromblad said. Explaining that in his view both row and permanent crops can constitute core investments, he gave US Midwest row crop farmland and Brazilian sugarcane as examples.

“We have a reasonably low return expectation for farmland, and that fits into our portfolio,” he added, estimating expected returns from agriculture at 5-10 percent.

Other principles guiding the pension’s approach to agriculture, according to Stromblad, have included an approach to diversification that seeks to build exposure to a variety of weather systems and a focus on soil quality preservation.

“We don’t want to go to areas of the world where you are developing farmland from nothing, or transfer it from some other use,” he said. “As a manager, if you don’t treat the soil properly, it will destroy value.”

Another key theme, according to Stromblad, has grown out from AP2’s belief that incorporating ESG-related factors into investments can be a value enhancer, as opposed to simply risk protection. He highlighted the pension’s participation in the group that produced the UN Principles for Responsible Investment in Farmland and steps to audit TIAA’s Brazilian farmland investments as examples of how the conviction has helped shape his approach to agriculture.

Though agriculture is only one of seven sectors the vehicle plans to invest in, AP2’s focus on impact investing was demonstrated recently when it committed $50 million to The Rise Fund, TPG’s impact investing vehicle.

AP2 has invested in other TPG funds and Stromblad said that he thinks the fund will contribute to the ongoing evolution of impact investing.

“The reason Rise is good is that they are also measuring the impact that they are having and turning that into return on impact, as well as return on investment, and it should do both,” he said.