Australian superfunds ‘start from position of negativity’ when considering agriculture

International investors are more attracted to the opportunities presented by Australian agriculture while domestic superannuation funds are still primarily concerned with the sector’s risks, an Australian fund manager has said.

Speaking at an Agribusiness Australia event in Sydney earlier this month, Frank Barillaro, a partner at private equity firm Roc Partners, said that he still found conversations with overseas institutional investors “easier” given ongoing hesitancy to invest in the asset class among domestic LPs.

Roc Partners has been successful in raising capital from Australian superannuation funds, with Aware Super and Cbus among its investors. The firm has said that 99 percent of its agricultural investor base is in Australian. It reached a A$40 million ($28 million; €27 million) first close on its inaugural agriculture-focused fund in 2021.

“When you’re speaking to Australian investors, it’s a conversation about what can go wrong, because all we hear in the press [here] is drought, floods and bushfires. Whereas the conversation in the US and Europe is completely different: it’s all about how Australian agriculture is clean, green and a place you want to be,” Barillaro said.

“So, we’ve found that bringing Australians up the curve, you’re starting form a position of negativity. We’ve found the conversations offshore much easier, and there’s a lot more appetite for offshore capital to come into Australia than the other way around.

“And that, I think, is a shame because we’re seeing a lot of blue-ribbon assets being traded in Australian ag, particularly over the last two or three years, and it’s all going to offshore capital. I think a lot of those assets, once they’ve traded will never come back into Australian hands. The North Americans have done really well in Australia by buying long-dated assets with long-dated cashflows, [that are an] inflation hedge, negatively correlated. They’re taking the longer-term view.”

Despite this, Roc Partners has acquired several high-profile assets for its Australian investors, including wagyu beef producer Stone Axe Pastoral Company, chicken producer ProTen, glasshouse operator Flavorite and the Lachlan River Almonds business.

Liquidity through credit funds

Dan O’Donoghue, head of private credit at debt investor Merricks Capital who was also speaking at the event, said that Australian superfunds were suffering from a “liquidity matching problem” that was preventing them from investing in agriculture at a larger scale – and that private credit funds like those Merricks manages have proved popular. The firm launched its first dedicated agriculture credit fund in 2021.

“Investors in our fund have underlying liquidity, so they get a predictable return plus redemption of 30 days rather than 20 years’ investment horizon or however long it takes to sell a property. Investors have liquidity in the underlying asset of the fund, which is the loans, and those roll off over 12-18 months or two years,” he said.

“Superannuation funds tell us that underlying liquidity is good for them because, particularly with these institutional superfunds, it’s a liquidity matching problem. Their capital is not like the North American pension funds that have defined benefit schemes – in Australia, they might get a run on the fund where they might need to pay money out.”

Barillaro added that scale was also still a problem for many Australian investors, but that rising asset values were helping to create larger deals that can attract more interest.

“Size and scale enables a lot of the bigger end of town to look at transactions. With a number of investors, if you’re talking sub-A$100 million, it’s not even worth a conversation. A lot of the big institutional capital is looking for bigger-scale investments. Asset values inflating helps that conversation because you can present bigger deals to different investors,” he said.