Exclusive: Agcapita to close sixth fund on C$8m

Founder Stephen Johnston told Agri Investor that the manager has also raised C$60m for a separate open-ended vehicle targeting institutional investors with a buy-and-lease strategy focused on Canadian farmland.


Agcapita expects to close its sixth retail fund on C$8 million ($6.3 million; €5.36 million) at the end of November, according to the Calgary-based firm’s founder.

Stephen Johnston told Agri Investor that Fund VI, which launched in February 2016, has collected investments averaging C$15,000 per person via retirement savings plans registered in Canada through a scheme similar to American IRAs.

Johnston also said that a separate vehicle soliciting investments directly from institutional investors has raised C$60 million from Canadian pension plans and family offices since the beginning of last year. The average commitment to that fund, according to Johnston, has been about C$5 million.

Agcapita typically raises about C$10 million per year through vehicles with similar fundraising strategies to Fund VI, and generally plans on deploying C$100 million per year across Canada’s farmland markets, according to Johnston.

Across both vehicles, Johnston said, recent fundraising efforts have revealed an evolution in LPs’ understanding of the asset class.

“When we go to discuss this thesis with family offices or [pension] plans, they’ve actually now done the research,” he said. “Now, it really just comes down to manager selection, whereas four years ago, you were still educating them about the basics.”

Both funds’ strategy, according to Elliot, will echo that of the firm’s previous efforts in being diversified by operator, crop and geography, though concentrated to a degree on western Canada.

Johnston explained that across both vehicles, Agcapita seeks to capture agricultural returns in farmland through a strategy focused on removing as much volatility as possible. As a result, the firm does not operate its own properties, apply leverage on its assets or participate in crop sharing or input credit provisions.

“The higher the volatility, intrinsically the less valuable the land should be,” he said. “We don’t want operations driving returns. We don’t want leverage driving returns. We don’t want commodity prices, in the short-term, driving returns. We want the discount to drive returns, it’s much more reliable.”

In sourcing its acquisitions, Agcapita focuses on regions of Canada with a large number of farmland transactions, with typical purchases worth more than $1 million, according to Johnston.

Rather than concentrating on a per-acre price for farmland, Johnston explained that his firm evaluates land based on its production capacity and the volatility of that production. Using that metric, he said, the firm has calculated the per-ton price of wheat-growing capacity in western Canada at between $1,100 and $1,400, well below a developing world average of $2,800.

In instances where two pieces of land have the same production capacity, Johnston said, Agcapita’s strategy always favors the property with lower volatility.

‘Informal credit filter’

The firm’s focus on removing volatility also extends to how Agcapita approaches the search for farmers to lease the land it buys.  Rather than the more typical arrangement of 50 percent rent payments in both the Spring and Fall, Johnston said that Agcapita insists on front-end loaded cash rents delivered in one lump sum.

In addition to lowering operational and credit risk, the structure also has the benefit of attracting the type of farmers the firm hopes to partner with, according to Johnston.

“It’s kind of like an informal credit filter for us,” he said. “Lots of guys will do it, and they are probably the right people to have operating because they are intrinsically more credit-worthy.”

Agcapita’s total portfolio is about 70,000 acres and is valued at approximately $100 million. The first and second iterations of the firm’s retail fund produced internal rates of return of 15 percent, while returns on Fund III, IV and V have varied between 10 and 20 percent, according to Johnston.