Appetite for ag remains healthy when the pitch is right

Roc Partners’ fund close shows that agriculture’s defensive characteristics are appealing to investors with inflation here and uncertainty on the horizon.

Sydney-based private equity firm Roc Partners held a final close of A$108 million ($72.5 million; €71.9 million) for its Premium Food Fund late last week, as revealed by Agri Investor on Monday.

Roc Partners’ strategy differs from some more traditional farmland funds, taking a private equity-style approach to food production businesses that can potentially generate much higher returns.

This approach has paid dividends for the firm at a time when investors are increasingly interested in the asset class and what it can offer during times of economic volatility and uncertainty.

As partner Brad Mytton told us this week: “There has been renewed interest [from Australian investors]. Many are talking about inflation, and agriculture is high on the radar when you are thinking about how best to deal with that.”

The asset class, generally, can be a defensive addition to any investor’s portfolio and its performance during the covid-19 pandemic seemed to prove what most fund managers in the space have always said: that it is not correlated to other asset types and thus is more insulated from wider economic shocks. Agriculture should prove itself to be resilient to inflation given the fact that people need to eat regardless of economic conditions, even if the cost of farm inputs has been on the rise.

Mytton said that Roc Partners’ strategy, focused as it is on premium brands, has ensured that its portfolio companies have been able to pass on increased production costs to customers via price rises – so far at least.

Beyond the commingled fund strategy, Roc’s platform has now crossed the A$2 billion AUM mark, as sure a sign as any that appetite remains healthy among investors.

While we at Agri Investor have heard differing views about the ease or otherwise of fundraising for ag strategies here in Australia, most do seem to think that investors are at least more open to having a conversation than at other time in recent history.

A report published this week by Industry Super Australia, How Industry Super Investments Support the Australian Economy, estimated that industry superfunds have more than A$3.3 billion invested in Australian agriculture, listed and unlisted.

But it still cited the familiar trio of “a lack of comparable performance data, detailed knowledge of the sector, and difficulties achieving investment scale” as impediments to investment, identified in a 2018 House of Representatives committee inquiry.

There are certainly plenty of institutional-scale investment opportunities in Australia now, although each portfolio or asset is hotly contested. And the argument about performance data is getting harder to accept as time goes on and more funds demonstrate successful track records.

While Roc’s Premium Food Fund is relatively small by the standards of many of the largest industry superfunds, the success of its wider ag platform shows there is capital to be raised from these investors when the opportunity set is right.

The characteristics of the asset class are increasingly appealing now that uncertainty is baked into the economic picture for the foreseeable future.