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BDO: Superfunds more concerned about agri fund management than liquidity

The lack of investable agriculture investment products was the main reason MySuper funds gave for staying away from the sector in a recent report commissioned by accounting firm BDO.

Although often blamed for the lack of interest from Australian superannuation funds, lack of liquidity and the long-term nature of agriculture investments were not the main concerns of the pensions surveyed in a recent report from BDO, the accounting firm.

The superfund industry’s three-month reporting period has often been blamed for lacking investment into agriculture – typically a long-term and relatively illiquid play compared to more traditional asset classes – but this was low down on the list of reasons the funds gave for not investing into agriculture.

“Notably, the short-term versus long-term focus is not perceived to be a highly relevant consideration for having low investment in agriculture,” reads the BDO report. “One interpretation of the response to this statement is that superannuation funds do not have an overly short-term focus.”

Instead, the lack of investable agriculture investment products was the biggest reason for staying away from the sector. This was followed by a lack of asset managers in the market, limited listed agri opportunities, the disproportionate increase in the management expense ratio (MER) and a lack of information about investing into the sector.

Reasons why funds do not invest in the agriculture sector

Statement Average response on scale of 1-7 where 1 is strongly disagree and 7 is strongly agree
The expected level of return is too low 4.4
There is a lack of asset managers who cover agricultural investments 5.4
There is a lack of information regarding investment in the industry 4.8
There is a lack of investable products 5.7
Our superannuation fund takes a short term return focus while agricultural investments require a long term return focus 1.9
Agricultural returns are too volatile 4.6
There are limited listed agricultural investment opportunities
Agricultural investments do not provide adequate dividend returns 3.8
The average rates of return is too low 4
The initial investment cost is too high 4.2
Agricultural investments disproportionately increase the Management expense ratio (MER) 4.9

Source: BDO

The research, conducted by the University of Queensland Business School, surveyed the MySuper product range which accounts for one-third of the A$1.9 trillion Australian superannuation industry, or A$364 billion.

Just 0.3 percent of MySuper superannuation funds’ portfolios are invested in agricultural assets with a maximum allocation to the sector of 1 percent, according to the report.

These findings did not surprise market participants that have frequently bemoaned the lack of domestic pension fund interest in the country’s agriculture sector which accounts for 12 percent of Australia’s GDP and generates over A$150 billion annually.

“I knew it was low, but didn’t think it would be that low,” said David Krause, national leader, food & agribusiness at BDO, who headed up the project. “The reason we commissioned this report was to provide more facts to the debate as previously no one really knew the figures before. And also start to provide some useful insights to potential clients on how they can try to appeal to this huge pool of capital.”

Australian fund management firm Blue Sky Alternative Investments has recently announced a diversified fund it thinks will attract capital from super funds. The firm described an unwillingness to passively own farmland and essentially be a farmer as the major reason super funds have not embraced the asset class.