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Christian Super approaches agri with caution

Burned by its first domestic investment, the Australian super fund will look for longer term, larger scale and more geographically diverse opportunities in the future.

Disappointed by the performance of its first agriculture fund investment, Christian Super, the A$850 million ($798 million; €575 million) Australian superannuation fund, is keen to pursue a more geographically diverse, larger scale and longer term strategy if it returns to the asset class, according to Tim Macready, chief investment officer.

Christian Super in 2010 committed A$10 million to the A$150 million domestically focused Sustainable Agriculture Fund, managed by Australian Farms Fund Management. The GP has now rebranded to AgCap after a management team overhaul, in the wake of poor performance that amounted to an average annual return of 1 percent since launch, Macready said.

‘Style drift’, or the changing of investment strategies during the life of the fund, was part of the problem, according to several LPs who also said on-farm management practices and bad weather events contributed to lacklustre returns. “Weather risk … is a natural risk to take in this sector, and without traditional financial markets risk, we are happy to take it on,” said Macready. “But the fund never got the scale of diversification it needed to cope with bad weather events in certain regions.”

“If and when we look at another agriculture investment we will certainly seek more geographical diversification and scale,” said Macready. “Scale is needed in this space perhaps more than in others to get assets of a big enough size of run economically and provide protection. We are not sure whether we will stay in Australia or buying something overseas.”

Investing overseas would not be straight forward, however, he added. “Offshore investments can be tricky for us because of the cost of hedging the currency exposure back into Aussie dollars, which can be significant the further afield we go,” said Macready.

His team will also look for funds that endure over a longer time frame than Sustainable Agriculture Fund’s seven-year life, as, “I suspect that is not long enough to get decent returns”, said Macready.

However, he’s upbeat about the changes John McKillop, AgCap’s new managing director as of August 2013, and his team are implementing, such as selling some of the Sustainable Agriculture Fund’s non-core assets and using the cash flow to increase the size of its farm aggregations. And the farmland has not lost any value.

But he will still look more carefully for certain characteristics if and when they invest again. The fund will even consider overseas investing, he told Agri Investor.

“If and when we look at another agriculture investment we will certainly seek more geographical diversification and scale,” said Macready. “Scale is needed in this space perhaps more than in others to get assets of a big enough size of run economically and provide protection. We are not sure whether we will stay in Australia or buying something overseas.”

Christian Super has a 2-3 percent allocation to agriculture within a more general 6-7 percent real assets allocation that includes infrastructure, clean technology and public-private partnerships. The AgCap fund investment represented 3.3 percent of the fund at the time of investment.