The fund of funds, which aims to generate net IRRs of 12%-15%, already has a pipeline of 18 managers stretching from annual and permanent crops to dairy and aquaculture. We caught up with Aqueduct partner Peter Roney to learn more about future hires, fees and strategy.
When the trio at the head of Aqueduct Investment Partners formed the firm last year, they embarked on a clearly defined mission.
“We’ve seen a lot of institutions get very interested in agriculture but have great difficulty in just making a start,” Peter Roney, a partner at Aqueduct, tells Agri Investor. Among the main hurdles, he says, was a fundamental question: how to achieve scale and diversification in an asset class that has so far largely been the hunting ground of specialist funds.
Aqueduct’s offer, he explains, is “really a response to that”: the stepping stone LPs need to get comfortable with the asset class. “It probably wouldn’t be their last investment, but certainly it’s a good start.”
Cherry-picking global managers
At the core of the firm’s strategy is its debut vehicle – a fund of funds launched earlier this year with a $250 million target. The team hopes to reach a $50 million to $75 million first close by the first quarter of 2018, with a final close expected by the end of the year.
Its prospective LPs, Roney notes, comprise pension funds, endowments and family offices. The firm has so far largely spoken to US institutions, but hopes to widen the circle to European LPs – and possibly Australian organizations – in 2018.
The vehicle has a global ambit, with an initial focus on US, Europe, Australasia and Latin America. But that’s not the only way in which it will be diversified. Aqueduct’s debut fund will span agriculture verticals, covering land and agribusiness but also agtech. It will also stretch across sectors. Its model portfolio includes 18 funds covering annual and permanent crops, dairy, livestock, aquaculture, logistics, food processing, agtech and “specific water exposures.”
“We believe bringing all those together is better in terms of risk management, and also in terms of returns. You can drive some yield from the land-based part of the portfolio but you also have generally higher prospective returns available from agribusiness and agtech,” Roney argues.
The firm will be targeting net IRRs of 12 percent to 15 percent over the life of the fund, which at the moment is 10 years, “although there could be some liquidity events within that period,” he says. The offering will also include some co-investment opportunities, which he reckons could help boost returns while lowering costs for LPs.
In these respects Aqueduct’s first fund is not so different from a private equity structure. In other ways, it innovates. “We recognize the fact that agriculture is still an embryonic asset class. So we’ve tried to make the fees very competitive,” Roney says. Aqueduct charges management fees of 1.25 percent, with a carry of 10 percent over an 8 percent hurdle.
He notes that the LP response has been encouraging so far, and that the firm is “very sympathetic” to the many questions investors have to ask.
“When you talk about agriculture investment to people who’ve never been near the space they immediately think that it’s simply just investing in farms. There is nothing wrong with just investing in farms. But the agriculture value chain is much bigger than that, and that in itself is both an advantage and a problem.”
The team is new, and the fund is also a first, which is why Roney thinks early adopters will play a crucial role in the success of Aqueduct. So will new joiners. The firm is currently made up of its three partners, which in addition to Roney include Robert LeClercq and Will Velie. By the first close, however, the team will likely grow to five.
“We feel we’re getting some real traction.” In part, such attention is coming from LPs showing interest in separate accounts. One of them, Roney adds, has mentioned the “notional figure” of $100 million.
But Roney is keen to emphasize that, despite a degree of discretion offered to some investors, the firm is not going to create “something that’s totally different from the fund.” “We still believe in the principles of diversification, in the principles of only dealing with world-class operators who have demonstrable track records.”