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Exclusive: Agri LPs paying performance fees only on outperformance

Fresh research by bfinance maps the agri manager universe at up to 90 funds with a median management fee of 1.4%.

 

Limited partners looking to diversify into timber and agriculture have at least one reason to rejoice: they’re likely to pay comparatively less in performance fees than for other real assets.

The reason, according to bfinance, is that agri hurdle rates tend to be set in line with performance targets rather than below them, as happens elsewhere. “In other words, investors pay performance fees only on outperformance,” the UK-based advisory said in a note seen by Agri Investor.

More specifically, median quoted charges comprise a 1.4 percent management fee and a 15 percent performance fee, bfinance stated, noting that agri fees are generally “high by real assets standards.” As an important caveat, however, the firm observed that arrangements vary widely, with some managers charging a flat rate of 1 percent to 1.5 percent and others expecting a 1.5 percent + 20 percent fee structure.

Another point of difference with real assets counterparts is the low minimum investment size – often $5 million – which bfinance reckons is “good news for smaller investors.” However, LPs that prefer not to represent a large proportion of a vehicle’s assets under management “can find the universe constrained,” the firm said.

Bfinance estimates that the agri and timber universe includes between 70 and 90 managers, fewer than half of which are typically looking for funding at any one time.

The most common structure, it said, is closed-ended funds with a 10- to 15-year horizon, in line with infrastructure peers. Open-ended vehicles, also available, tend to have a two- to five-year lock-up period.

Other areas of the market are gradually coming together, such as secondaries – although bfinance noted there are more opportunities of that nature in timberland than in agriculture for now. “There are a handful of fund-of-fund or multimanager products available,” it said.