Connecticut Retirement Plans and Trust Funds is considering a $75 million commitment to Homestead Capital Fund III, investment advisory council meeting documents show.
Homestead Capital USA Farmland Fund III had raised $402 million as of October 2019. The fund has a $600 million target and a hard-cap of $700 million. Final close is expected to be held in June 2020.
The $36 billion pension fund is currently underweight in its infrastructure and real assets portfolio, which had a total allocation of 0.4 percent as of December 2019 against a target of 4.2 percent.
Fund III is a value-add buy-and-lease strategy that will invest exclusively in US farms growing permanent and row crops. It will seek to acquire 35-45 farms in the Mountain West, Pacific, Midwest and Delta regions, with a price range of between $5 million – $30 million, according to the meeting documents.
“Homestead aims for this smaller farm size as the firm views this as a less competitive segment; this size is also too large for non-corporate farmers and too small for large institutional investors,” said the summary notes.
The fund’s projected gross unlevered internal rate of return is 11-13 percent, including an annual gross cash yield of 5-7 percent.
“As demand for food is expected to remain constant, the fund’s strategy has the potential to provide downside protection, income and appreciation within a segment of the market that has historically produced solid returns with lower volatility, even during periods of disruption and slow growth,” noted state treasurer Shawn Wooden in the meeting notes.
San Francisco-headquartered Homestead was founded in 2012 and closed its debut fund on $173 million in July 2015. Fund III’s immediate predecessor, Homestead Capital USA Farmland Fund II, closed on $400 million in late 2016.
Commitments to Fund III have included $100 million from the $76.9 billion New Jersey Division of Investment, $25 million from the $8.5 billion Rhode Island State Investment Authority and $35 million from the $8.54 billion District of Columbia Retirement Board.
Homestead acquired the equity interest from all third-party investors and became an employee-owned organization in early 2018, with co-founders and joint managing partners Daniel Little and Gabriel Santos each owning a 50 percent interest. However, the firm’s seed investors retain a carried interest of 14.5 percent in Fund III, according to the CRPTF meeting documents.