Equilibrium secures more than $1bn for second CEA fund

Chairman Dave Chen says developments in controlled environment ag since Fund I’s $336m close in 2019 helped attract large Canadian and European pensions to its successor.

Equilibrium has closed the second iteration of its Controlled Environment Foods Fund on $1.02 billion after drawing commitments from a mixture of new and returning investors.

Chairman Dave Chen told Agri Investor five investors make up about half of the capital in CEFF II, which was launched in late 2019 with a target of $500 million. A majority of Fund I investors also committed to Fund II, according to Chen, who declined to identify additional LPs.

He said that whereas Portland, Oregon-headquartered Equilibrium closed CEFF I on $336 million in 2019 largely through commitments from mid-sized pensions and a portfolio consultant, the controlled environment agriculture market’s development during the years since helped attract larger pensions to Fund II.

“In Fund II we saw a major presence of the large Canadian pensions and continued expansion of European pensions,” he said. “The largest single block of investors in Fund II are actually European pensions.”

According to a late 2020 list of its assets, Swedish pension AP4 is among the investors in CEFF II, which also include the Development Bank of Japan and the San Francisco Public Employees Retirement Association, among others.

Chen added that many of the larger pensions that have recently become more interested in CEA also have extensive land-based ag portfolios and had been waiting to see how the first iteration of Equilibrium’s CEA would perform. He declined to discuss return expectations for CEFF II beyond clarifying that each of the two funds achieve steady returns through a combination of investments in existing greenhouse facilities, and greenfield projects aiming to achieve returns within 18 to 24 months from the start of construction.

Deployments from CEFF II have included investments of an undisclosed size into Mexican greenhouse company Finka, US-East Coast focused Little Leaf Farms, and a $110 million combination of equity and debt supporting construction of a 40-acre greenhouse lettuce facility in Texas by portfolio company Revol Greens.

“Our expectation is that controlled environment agriculture is at inflection and entering a growth phase and that these assets are going to become a mainstay of the agricultural supply system,” said Chen. He highlighted Cargill’s recent $200 million loan to Hamilton, Montana-headquartered indoor agriculture company Local Bounti, to illustrate the evolving capital base supporting expansion. “If that proves out in the numbers and performance and value of the portfolio, then Fund III is likely going to form a receptacle that reflects this long-term asset value.”

In June, Chen mentioned public and private REITS, carve-outs by established infrastructure and real estate managers and the creation of new managers and strategic partnerships among approaches likely to be employed in CEA. Looking ahead, Chen said the overall growth of the subsector, CEFF II’s deployment timeline and the performance of its assets will determine which structure best suits Equilibrium’s next CEA vehicle.

“There were a number of very large pensions that wanted to get in with large blocks of capital and we might have to wait until Fund III to work with them,” said Chen. “You are seeing in the largest pensions and sovereign wealth funds these days a realization that if you have an asset base you own or have invested in that is attached to a long-term macro trend, it might be to your advantage to hold on to it and continue to grow it, as opposed to continuously flipping in and out of it.”