Domestic focus and sustainability drawing SWFs to ag – IE University

Director of sovereign wealth research Javier Capape Aguilar says agriculture will be among key sectors in the near term for state-backed investors.

Sovereign wealth funds’ growing focus on domestic investments and sustainability is shaping their interest in food and agriculture, according to the director of sovereign wealth research at Spain’s IE University.

“The fact that sovereign wealth funds are looking inwards more than ever makes agriculture one key sector in the near term,” Javier Capapé Aguilar told Agri Investor soon after release of IE University’s Sovereign Wealth Funds 2020 report.

Published in early March by the Center for the Governance of Change, the report analyzes $43 billion invested by 16 SWFs across 165 transactions between June 2019 and September 2020. It describes how infrastructure, technology and life sciences were among the most active sectors as SWFs were used to stabilize fiscal resources, support pandemic response and advance sustainable sources of energy, mobility and food.

Aguilar said IE University’s research showed SWFs invested $1.4 billion into food and beverage companies during its study period, though some investments relevant to the broader market may have been logged as biotech. Among the ag-related transactions mentioned in the report were investments into California-headquartered biofertilizer provider Symborg, and Spanish food processor Palacios by the Spain Oman Private Equity Fund.

“Beyond the innovation on platforms they use, their ability to access different points of contact in the value chain for food and agriculture is quite intense,” Aguilar added. “They can reach the traders, they can reach the producers, they can reach those selling solutions for producers. They have really strong access and for them it’s really central.”

SWFs have always maintained some interest in ag-related real assets like farmland and cattle both at home and abroad, said Aguilar. Pressure to invest domestically in support of national food security, he said, has increased following covid-19, which highlighted supply chain vulnerabilities and helped strengthen existing interest in sustainability and impact investing among elite SWFs.

Recent years have seen SWFs deploy innovative strategies and structures to access promising deals and ensure they remain close to dealflow pipelines, he added.

“I would not be surprised if they are long-term investors in some of the largest agricultural trade companies, where they are able to bring, first, assets; second, talent and third, the combination of both to start investing in solutions that will be applicable to the country,” Aguilar said.

“They can give access to international investors through the national sovereign wealth fund investing or designing an investment plan for specific sectors, including agriculture. We would not be surprised to see more of that.”

Singapore was highlighted in the report as making particularly active and specialized use of SWF investment to support food supply. Temasek’s “pivot to agribusiness and innovative food products” was described as including urban farming and investments in Impossible Foods, Singaporean plant-based meat provider Growthwell Group and others “encouraging ethical consumer food choices.”

Temasek’s successful previous support of Singapore’s domestic telecommunications, transport and airline industries, Aguilar explained, is part of what makes it such a closely watched example among SWFs.

“All of these developing countries that have established sovereign wealth funds in the past trying to mimic Norway, they’ve realized that instead of focusing on Norway, they should focus more on Temasek and those that have more of a domestic and strategic approach,” he said.

“[SWFs] are investing more and more like Temasek at its origin; into strategic companies they want to transform and improve the efficiency and performance of and list them into the stock market in the future, or at least partially divest from them,” he said. “We will see that happening the agricultural space for sure.”

SWFs being established by African countries especially, he said, are keenly aware of the need to diversify extensive foreign investments toward more support for domestic businesses. The Nigerian Sovereign Investment Authority’s recent focus on Nigeria’s domestic fertilizer and ammonia industries to help reduce dependence on hydrocarbons provides an example, according to Aguilar, of how evolution in SWFs’ approach can create  opportunity for investment managers.