There are two ways of looking at agriculture as an investment class, Johannes Zhou, chief strategic officer at sovereign wealth fund China Investment Corporation, told delegates at Agri Investor’s inaugural conference on Thursday.
“The vast majority of investors tend to be beta investors that look at core agri assets such as land,” he said. Other, ‘alpha investors’, look at enhancing value through other means such as infrastructure like storage and freight, he added.
Depending on which type of investor you are, your appetite for adding more risk, such as through leverage, will differ, according to Zhou.
“Institutional investors tend to want to put their assets on something they believe in over the longer term, unlike equity that they want to give up when the going gets tough,” he added. “Beta agri investments are not something you want to flip.” And these investors can be happy with around an 8 percent return.
Other less patient investors that want yields faster can encounter more “alpha” opportunities further downstream in the agri value chain, he said. But they will have to take a much more aggressive route to achieve higher than 8 percent yields, Zhou added.
Several sovereign wealth funds in the Middle East have taken this route which has resulted in them taking over companies with significant agricultural assets and using these companies to expand and add value, he told delegates.
This has been in areas such as food processing, branding and the immunisation of cattle.
Zhou was one of many institutional investors speaking at the Forum, which continues on Friday in Chicago. Click here for the full agenda.