Deals

Black Sea Agriculture reduces fund fees

The Eastern Europe-focused fund management firm will not charge a management fee until assets under management reach $5m. The performance fee has also been reduced.

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Black Sea Agriculture, an Eastern Europe-focused asset management firm, has changed its fee structure and will waive the Black Sea Agriculture Fund’s management fee until it reaches a certain volume of assets under management.

The buy-and-lease fund previously charged 2 percent on investments made under $1 million and 1 percent on anything over. Now the open-ended fund will waive all management fees until the $1.5 million vehicle reaches assets under management of at least $5 million, according to Jeffrey Notaro, principal and executive officer of Global Quest, the parent company.

At that stage it will charge 1 percent a year on assets under management. Black Sea has also decreased its performance fee to 15 percent annually, from 20 percent.

“We want to incur minimal expenses to our clients and provide more cash flows to them,” Notaro told Agri Investor.

Black Sea’s move comes as a debate heats up over appropriate fee structures in agri investing. Several market participants and investors have complained that structures mimicking those in the private equity world — namely charging a 2 percent management fee and 20 percent performance fee — are unsuitable for the smaller returns on offer in the agriculture investment market.

This has pushed several agri funds to pursue innovative fee structures that ensure investor and management firm are better aligned. These include buying assets through a company structure, scrapping the management fee, or by delaying the performance-based fee until all assets are realised.

Black Sea is still in negotiations with a US-based high net worth investor and a US institution about capital commitments both into the fund and also on a separate account basis, as reported in April.

The fund returned 7.55 percent in the first quarter of the year when combining the valuation of the underlying farmland it owns and the cash rental income. This reverses a downward trend in 2013 when it returned -1.04 percent.

None of the fund’s investors have decided to cash in the optional 3 percent – 4 percent return from the fund’s rental cash flows, according to Notaro. Their returns are instead compounded and will contribute towards acquiring more land, he added.