Milltrust Agricultural Investments, the agri division of UK- and Singapore-based Milltrust International, is mulling a move to Latin America as it seeks to expand its Buy & Lease strategy beyond Australasia.
The firm is particularly interested in Chile, where it is considering a portfolio of assets “very closely”, Griff Williams, chief investment officer of MAI, told Agri Investor. These would form the anchor of a dedicated LatAm fund focused on dairy, kiwi fruit, cherries, wine grapes, table grapes and citrus fruit.
The strategy would be in line with the approach taken by the firm in Australia and New Zealand, where it has started to deploy its first open-ended Buy & Lease vehicles. The approach is largely based on income generation, geographical and farm-type diversification, and the aggregation of discrete assets over time.
“We focus on clusters of farms farmed by the same family for generations, with ownership consequently diluted. These families are often asset-rich but cash-poor. So we come along and enable them to release some capital,” Williams said.
“Often the vendor is appointed as the lessee and, having released capital go on to buy the farm next door, brings it to a level where it generates positive cash flows and then we buy it. And that way we grow footprints in the regions we cover.”
The firm has so far garnered $80 million for Australia and New Zealand funds since launching the strategy in June 2016.
MAI’s largest LP is the Royal Borough of Windsor, and Williams said its investor base counts a number of local authority pensions. These include the Berkshire Pension Fund, which committed £30 million ($39.5 million; €33.9 million) last year.
The firm is also in talks with sovereign wealth funds and family offices, Williams noted, adding that the investment process and portfolio construction implemented within the funds can also be delivered as segregated accounts. “So we could do, and might do, some separate accounts. But we would need commitments of $20 million to $30 million or more, which is the minimum to construct a diversified portfolio.”
In Brazil and other markets, we have built networks of very close contacts and we will establish funds that include these markets in time
Griff Williams, Milltrust Agricultural Investments
Both the Australia and New Zealand fund are hosted within an Irish Collective Asset Management Vehicle, a one-year-old AIFMD-compliant structure that can be distributed across EU member states. The product is also available to US investors, Williams said.
LPs come to the firm’s agri Buy & Lease strategy with various motivations, he added, ranging from a will to expand beyond expensive infrastructure and commercial real estate assets to diversify portfolio concentrated on fixed income or equities.
MAI is exclusively focused on the Southern Hemisphere, where the absence of subsidies makes the agriculture sector more competitive, with a competitive advantage in food and fiber production also derived from favourable climate and deep expertise, in the firm’s view.
Markets located in the Northern Hemisphere, Williams reckons, are less efficient from an investment point of view, with too much politics and subsidies. “They’re also overanalyzed, overowned.”
In Latin America, the company may also look at Uruguay, which Williams placed in the same category as Chile, and Paraguay, which he described as more of a “frontier” market. He described Brazil as a promising market, too, but said limitations on foreign ownership made it difficult to roll out a buy & lease strategy, hinting it would have to be a buy & operate approach instead.
“Still, in Brazil and other markets, we have built networks of very close contacts and we will establish funds that include these markets in time.” These contacts, typically, are family offices that have been operating farms over “several generations”, he remarked.
Williams explained that MAI’s Buy & Lease approach, which took inspiration from North America, where LPs are more focused on income-generating products, was new to Australasia. He was careful to note, however, that the strategy includes a development component.
“We try to cut part of the J-curve. There is often some capex needed, typically 10 percent of the investment, but the farms we purchase are already operating and generating income.”