From real assets funds of funds to vertically integrated agribusiness offerings – fund managers are responding to investors’ diversification needs.
Last week, I spoke to an Asian family office that started evaluating agricultural investments four years ago. The office decided to invest directly into farms globally after failing to find a suitable or appealing third-party investment fund. “Most funds on offer are very concentrated by geography or commodity type,” the office’s managing director told me. Had they been able to find a truly diversified global offering they gladly would have committed capital to a fund manager instead. “It certainly would have avoided a lot of the hassle in going it alone,” he said.
Previously I’ve put forward the idea that an agri fund of funds could be a great way for some investors to access the asset class without needing too much internal expertise to analyse each fund or investment offering. Diversification could also be a main benefit depending on the FoF’s investment strategy. But in talking with market participants since, it seems that may not be a viable route after all – it would be tough for investors to swallow the double layer of fees inherent in most funds of funds offerings. Particularly as agri fund returns arguably haven’t been high enough to sustain the first layer of ‘traditional’ 2-and-20-style fee structures.
Some fund managers are confronting the diversification issue head-on with current vehicles in the market. Examples springing to mind including Insight Investment’s first fund, which closed on $250 million in 2013 and will invest in dairy, beef and mixed grains across Latin America, Eastern Europe and Australasia over the next four years. And Equilibrium Capital’s multi-strategy fund, which is effectively a FoF in that it invests in each of its standalone real assets funds without charging an extra management fee; the only extra cost is an administration fee. The firm’s real assets funds include two agriculture-specific funds, one wastewater-centric and two sustainable property funds, so it is not a pure agriculture play. Presumably there’s scope (and clearly demand) for fund managers to create a similar multi-strategy structure offering pure agriculture exposure.
Another option, and something that is gathering pace, is a vertically integrated agribusiness project, offering investors exposure to primary production, processing and sometimes even the end sale. Agriculture Capital Management, a US-based permanent crop fund management firm, and Integrated Food and Energy Developments (IFED), an Australian cropping, grazing and primary processing enterprise, are among the firms that have launched such projects recently. While potentially linked to just one or two commodities, this type of investment offers exposure to other parts of the agriculture industry such as its infrastructure. Could that type of diversification be enough to attract nervous, risk-averse investors? Watch this space for more coverage on this next week…