A vote of confidence from large institutional investors such as TIAA-CREF and APG is good for the region’s reputation. But it could also highlight the local industry’s structural weaknesses.
Last week Agri Investor revealed that Westchester, TIAA-CREF’s farmland management firm, had hired Martin Davies to lead a European investment portfolio as chief executive of the region, a new direction for the US firm.
Westchester and TIAA-CREF would not comment further about the hire, save to confirm it. But the industry rumour mill has been busy at work with talk of the firm having some $250 million to invest into Central and Eastern European (CEE) countries within the European Union. Given Davies’s experience in this region when working as head of farmland investment at Insight Investment, this is not a surprise.
TIAA-CREF’s endorsement of CEE has been welcomed by some asset managers as a much-needed boost to the region’s reputation, particularly in light of the distinct cooling-off among institutional investors following the Ukraine crisis, the ensuing sanctions by the West, and food import bans by Russia.
“I think that this vote of confidence from Westchester will have a positive impact, as a lot of large institutional investors are a bit sheep-like and like to have a bit of a path to follow,” says Tom Arthey, director at Mintridge International, the Eastern European Union-focused asset manager.
And TIAA-CREF is not the only big investor eyeing the region; APG also hinted at its interest in last week’s Point of View.
However, the arrival of these large institutions onto the CEE landscape is likely to throw up some challenges for the industry.
It’s likely to put upward pressure on land prices, for instance. It’s also historically proven difficult to deploy large amounts of capital in this area, largely due to the fragmented nature of the farmland market across much of the post-Soviet region.
Finding assets of institutional quality can be a challenge, too. “This has been a problem before and it has not turned out well for some investors,” admits Arthey. While there are some big businesses in search of capital that do represent compelling investment opportunities, he says, they’re few and far between – and in an increasingly crowded market place, they’ll be even be harder to find.
What’s more, finding suitable personnel can be difficult, since there is a lack of farming professionals at the middle to senior management level.
“There are plenty of young people coming out of agriculture colleges in Poland and Romania that are very good but they do not have the right level of experience to run farms straight away,” says Arthey. “Investors need experienced farm managers in the 30 years to 50 years old bracket, who know the nuances of the region. And that is not a group you come across every day.”
It’s true that a lot of investors have managed to find talented farm managers in their home markets (or elsewhere overseas) and export them to new markets to take on these more senior roles. But this is not always a foolproof plan; you cannot assume that expatriate farmers will have the right mindset (given family ties and so on) to settle into a new country and culture for the long term. And of course, the more in-demand these farm management professionals are, the smaller the available pool will be.
So yes, this vote of confidence is a positive for a region struggling with reputational issues at the moment. But expect the competitive landscape to become much tougher as a result.