Australian superfunds considering ‘IFM for agriculture’

Hostplus CIO Sam Sicilia says that high-level talks have already taken place as agriculture becomes relatively less risky.

Australian superannuation funds are considering creating a new vehicle to directly invest in domestic agriculture, according to a leading fund’s chief investment officer.

Sam Sicilia, CIO of Hostplus, told Agri Investor that the increased maturity of Australian superfunds following 20 years of investing in infrastructure, coupled with a realisation that much of the low-hanging fruit in other asset classes has been picked off, had made agriculture a more attractive investment.

He indicated that superfunds could look to create an equivalent of IFM Investors, set up by a group of industry superfunds 27 years ago, which would be targeted specifically at agriculture investments. Talks have already taken place on an informal basis at “a very high level”, Sicilia said, and the first visible action from the new initiative could potentially be seen as soon as 12-18 months from now.

“It’s going to take a collective investment spirit to solve the risk-management problem in agriculture and to get superfunds interested in investing. We’ve done this before with IFM, which now is a global infrastructure player. We’ve done the same in real estate with ISPT, the Industry Super Property Trust,” he said.

“In both of those circumstances, who owns the assets? The members of the superfunds. The same could be done with agriculture.”

If the seven-largest industry funds committed 5 percent of their capital to agriculture, he argued, this would create a pot of A$20 billion over the life of the vehicle.

During a panel discussion at The Australian Global Food Forum, in Sydney, Sicilia indicated that the fund would need to have A$1 billion to A$2 billion of initial investment to get off the ground.

Speaking to Agri Investor, Sicilia insisted that there would be no role for fund managers in the new vehicle: “A word of warning to fund managers out there: don’t come knocking on superfunds’ doors saying: ‘Have I got a deal for you’. That’s not how we’re going to run this.

“There is no role for funds management, none. Funds managers clip the ticket and take a fee – that money should go to the farmer.”

Sicilia said that lobby group Industry Super Australia had produced a research paper on Australian agriculture which had served as the basis for starting a conversation. “You can’t get these superfunds together with a blank sheet of paper – you’ve got to go with a proposal. We now have a document that says there’s a huge opportunity set,” he said.

He admitted that bad memories still lingered from previous superfund attempts to invest in Australian agriculture, but that funds had learned their lesson. This meant that the new vehicle would only take controlling stakes in assets and seek to invest in agribusinesses throughout the supply chain, not just farms.

“It’s always about control. In the past, where people have lost money in ag, whether those people are superfunds, wealthy businessmen, farmers, it’s because they haven’t had power and control,” Sicilia said. “In livestock, for example, you have to own the value chain from the abattoir to the sales yard to the feed lot to the refrigeration and the slaughterhouses, and you then have to own the contract with Coles and Woolworths. How do you do that? Well, who are the major shareholders of Coles and Woolworths?

“Remember, if you tell Coles and Woolworths to make less profit, that hurts superfund members. But if you tell them to price gouge it will hurt our agricultural investments. So there’s always a balance.”

Sicilia also argued that, while many factors could derail priorities away from agriculture, the sector was becoming lower risk in relative terms than it used to be, making this the right time for superfunds to invest again.