CDPQ deal shows Canadians are still beating Aussies to farmland opportunities

As the Clean Energy Finance Corporation head of natural capital Heechung Sung told Agri Investor this week when discussing her organization’s partnership with Caisse de dépôt et placement du Québec to form Wilga Farming: “It’s a pretty exciting transaction, to bring a new capital partner into the Australian market.

“This is a positive signal around this asset class being inherently investable for institutions.”

The move certainly is a positive development for the asset class but it does beg a fairly obvious question: why is it not an Australian superannuation fund partnering with the CEFC?

There are specific circumstances surrounding the deal, of course, that mean it was expedient for CEFC and CDPQ to join forces, not least of which is that CDPQ was actively looking for a way to enter the Australian market and had held discussions with Gunn Agri Partners before. This meant it was a natural next step to talk with CEFC as well, given the latter’s existing investment with Gunn Agri in the Transforming Farming Platform.

Given the CEFC has a mandate that only allows it to invest in Australian funds and assets, though, surely it would have liked to try and crowd in some Australian institutional capital as well?

Sung told Agri Investor that the CEFC was in discussions with Aussie superfunds over investing in agriculture, but that the conditions were still not quite right.

“There isn’t resistance out of principle – I would say superannuation funds have a lot of guardrails that they have to work within that create challenges for them,” she said.

“It’s not that we can’t have a meaningful discussion [with them]. They’ve just got some other considerations around portfolio allocation to Australia versus offshore, real assets versus traditional assets, RG 97 disclosures [around fees and costs], the benchmarks they have to fall within – it’s very difficult for an alternative asset class like natural capital or agriculture to have the kind of datasets that Australian superfunds need to start benchmarking under the Australian Prudential Regulation Authority.”

Sung expressed hope that Australian funds could find a different way to enter the market soon, perhaps once investments more commonly reach a scale that they can participate in, rather than having to back long-term aggregation plays.

“They aren’t opposed to the concept of investing in ag,” she concludes. It’s just that other factors continue to get in the way.

This will be a familiar refrain to any fund manager that has tried to raise capital for farmland strategies Down Under. But we’ve heard from some in the market that they see Australian funds as the potential exit route for many of the strategies we see today, in 10 years or perhaps even 20 years’ time, once that scale has been achieved and a demonstrable track record of performance exists.

The market can but hope. In the meantime, overseas funds like CDPQ will continue to reap the rewards available – and the CEFC has played an important role in this particular transaction to bring in that institutional capital and demonstrate how it can help decarbonize the sector while making a financial return.