Australian agri secondaries to grow

It makes sense for LPs to use the secondaries market for liquidity rather than seek asset sales when it comes to Australian agri, according to the head of a Queensland-based investment firm.

The agriculture secondaries market in Australia is expected to grow as discretionary long-term funds in the asset class become more common, according to the head of an investment firm.

“The secondaries market is definitely going to become more important, and there is a need for it,” Tim McGavin, chief executive of Laguna Bay Pastoral, told Agri Investor, adding that the fund structure for his own first commingled vehicle, Laguna Bay Agricultural Fund, was a case in point.

A secondaries market around agriculture assets in Australia barely exists, if at all, McGavin said. There has been some activity in timberland, with asset managers such as Stafford Capital Partners and New Forests owning assets in the region.

“We have tried to find anchor investors who are there forever and will want the re-up,” McGavin said. “They will be the natural buyer of units in a vehicle. The first wave of liquidity in a farmland fund should be driven by existing investors wanting to buy others out under commercial terms. It makes sense for the secondaries market to create the liquidity here rather than asset sales. Freedom of choice is also a big issue.”

Laguna Bay Agricultural Fund had a first close on A$280 million ($208 million; €183 million) in the first half of June. The fund, which has a A$750 million target and is aiming for a final close in May 2017, will focus on agri assets in Australia and New Zealand.  The initial fund life is 10 years and limited partners will have the option to extend their investment.

The overall Australasian secondaries market is estimated at between A$1.5 billion and A$3 billion, or 5 percent to 10 percent of the region’s A$30 billion primary private equity market. For Australia-focused agriculture and farmland funds, around $7 billion has been raised in primary capital since 2009, according to data from Preqin.

Globally, agri and timber secondaries had the biggest growth among asset classes last year with a 57 percent rise in transaction volume, according to a report by Setter Capital. The volume of stakes traded in the asset class remains tiny, with $313 million trading hands in 2015, accounting for 0.8 percent of total fund sales, according to the report.