Aquila Capital, the real assets manager, is hoping to deploy the capital of its Aquila Farms fund within 18 months of closing so as to take advantage of opportunities in Southeast Australia’s dairy farming market that officials say are time-sensitive.
Aquila Capital Farms (ACF), the agriculture management arm of the firm, expects the fund to close for the first and final time on $400 million in the third quarter. It started fundraising earlier this year. The fund has a seven-year life with two, one-year extensions.
“Aquila has the advantage of having its team, infrastructure and pre-screened pipeline in place, but the capital should ideally be deployed before the closure of gaps that provide the opportunity for excess returns,” Stuart MacDonald, managing director at Aquila, told Agri Investor.
The fund will invest directly into distressed dairy farms in Southeast Australia as an owner-operator and Aquila officials have already identified a $600 million pipeline of dairy farms with large amounts of debt on their books across different weather zones in the region.
“The Fund will acquire a portfolio of existing productive dairy assets, which have further upside potential to benefit from active management. Hindered by excessive debt, the farms have otherwise competent management so baseline returns will come from recapitalisation and improvements,” said MacDonald, who expects returns of at least 16 percent.
These returns will be derived from increasing land values — MacDonald believes the pricing discrepancy between similar, but more expensive land in New Zealand will start to close in the near future — and from increasing milk prices due to rising Asian demand and supply constraints in countries that produce milk at the lowest cost.
“This means that Australian milk is likely to be sellable at European and US prices,” added MacDonald.
ACF has a long track record in agriculture fund management with five closed German retail funds in its AgrarInvest range. Aquila Capital Farms has already invested into 65 farms globally and has assets under management of around $500 million. Fifteen investments have been realised with an average IRR of 14.1 percent after fees and before tax and 32 properties are currently being managed with an average IRR of 11.3 percent, also after fees and before tax, according to Aquila.
The firm partners with local operators to help manage the farms such as MyFarm in New Zealand.