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Exits and foreign investment

Demand from large institutional investors and strategic agribusinesses could create a bustling exit market for agri – as long as governments approve foreign investment into the sector.

Demand from large institutional investors and strategic agribusinesses could create a bustling exit market for agri – as long as governments approve foreign investment into the sector.

This week we revealed Milltrust International plans to raise a $150 million diversified agri fund. The fund will also make co-investments with investors keen to get exposure to certain projects which provides an interesting pool of potential buyers of those individual assets at exit, according to Milltrust partner Vishaal Shah.

These co-investors-turned-buyers could be food security-concerned corporations from Asia and the Middle East that are investing strategically as a means to improve their supply chain and access to primary production. Realising investments via asset sales to corporates or trade buyers is already an established exit route for some fund managers – general agribusiness M&A volumes are at $14.3 billion already this year – but the potential for co-investors to go on to purchase fund assets outright would build on this.

Another exciting and interesting dynamic developing is the acquisition of whole agri fund portfolios by institutional investors – an exit option increasingly mentioned by agri fund managers.

These institutions could be existing fund investors, keen to maintain the appealing cash flows of a diversified portfolio as a mean to meet their regular liabilities. Milltrust’s fund will focus on returning attractive cash flows to investors instead of relying on the farmland appreciation kicker at the end of the fund term – as many funds do – for this exact reason.

But another pool of potential institutional investor portfolio buyers is the large sovereign wealth or public pension funds that are too big to participate in many current agri investment offerings. These institutions need to put such large sums of capital to work that it doesn’t make economic or administrative sense for them to commit to the smaller, sub-$500 million funds comprising the bulk of the agri funds market. They may, however, be keen to gain direct exposure by purchasing a fund’s entire portfolio later down the line.

One example was CPPIB’s C$128 million ($117 million; €88 million) purchase of a Canadian farmland portfolio earlier this year from Assiniboia Capital. Assiniboia’s fund raised just C$53 million – a fraction of the multi-billion private investment funds investors like CPPIB typically commit to.

The development of this ‘exit market’ will take some time, not least because asset managers need to develop their investments into appealing agribusinesses for investors to acquire. But I think we may see more deals like the CPPIB example in five to 10 years’ time.

The foreign investment debate

The continuing debate surrounding the NZ$70 million ($59 million; €44 million) investment by a Chinese conglomerate into Lochinver Station, a sheep ranch in New Zealand, comes in stark contrast to foreign investment activity in neighbouring Australia.

This week Westchester, controlled by TIAA-CREF, bought two farms for A$9 million ($8.4 million; €6.3 million) in West Australia, according to local media reports. This takes its total commitment to Australian agri to over A$450 million, according to local sources.

“This is the best thing for Australian agri. We need foreign investment in agriculture across the board and it has full support from all sectors,” commented an institutional rural estate agent exampling the joint venture between Chinese meat importer Grand Farm and Australian meat processor V & V Walsh.

Of course New Zealand is not closed to foreign investment – its dairy industry has enjoyed capital injections from Chinese dairy companies in the past – but there are some concerns in the industry that politics could start to hold up foreign investment and stunt development.

What are your views? Get in touch at Louisa.b@peimedia.com.