Family offices’ desire for impact and illiquid deals ‘driving appetite for ag’

The rising interest from family offices in impact investing and illiquid investments are likely to shape future agricultural investments amid a surge in capital deployed by such investors, according to a fresh survey.

Based on a survey of 311 family offices with an average of $1.1 billion in assets under management, the fifth iteration of the UBS Global Family Office Report, compiled in collaboration with Campden Research, argues that institutions based in North America, Europe, emerging markets and Asia-Pacific have been at the heart of a boom in ag investments since 2000.

And, while agriculture accounted for just 1.8 percent of the average family office portfolio examined in the report, 17 percent of respondents reported plans to increase their allocation to agriculture. Almost 30 percent of respondents reported having at least one direct investment in a category that combined ag with forestry and aquaculture, despite just 2.8 percent of respondents identifying the source of their family’s underlying wealth as being agriculture.

Tom Parkman, a senior researcher at Campden and one of the report’s authors, told Agri Investor the fact that agriculture does emerge as a prominent theme in the report could, in part, reflect the fact that many family offices derive their wealth from businesses that are indirectly linked to the sector.

“Agriculture probably gets played down a little bit here and people are reporting manufacturing or logistics, but it’s actually heavily linked to agriculture,” Parkman said. “If you look back over the past 150 years, you will find that a lot of the most successful family businesses are in manufacturing – if not in agriculture – of things like manufacturing equipment for agriculture.”

Once bitten, twice shy

Parkman said that in the years following the turn of the century, many of the families examined in the report experienced strong growth through investments in real estate and housing. The subsequent crash of the sector in 2008, he explained, prompted a heightened degree of caution that has receded only gradually.

“We’re starting to potentially see confidence again in being able to invest, if not to the levels of pre-2008, but I think people are starting to get over the hangover of the 2008 crash,” Parkman said.  “If you experience that sort of loss and manage to pull your way back, it’s often once bitten, twice shy. So, people are very cautious about the risks they take now.”

That caution is reflected, Parkman said, in an elevated level of due diligence and deal governance that is likely to continue to shape family offices’ approach going forward.

Despite the perception among some investors that such vehicles are themselves illiquid, Parkman said, family offices continued a move away from hedge funds last year in favor of private equity.

“There seems to be a move towards people not minding being invested in illiquid things like private equity, of which agriculture could potentially be one, because the return on investment that you are seeing at the minute, particularly in certain regions, is so high,” Parkman explained.

Perhaps surprisingly, Parkman said agriculture was not frequently mentioned, even by those family offices that identified themselves as being more concerned with wealth preservation than growth. Agriculture accounted for just 2.2 percent of overall investments by such family offices, according to the report, compared with 1.2 percent of investment by those focused more on growth and 1.9 percent for investors pursuing a balanced approach.

‘People really want to do it’

One subject area where agriculture is particularly relevant, said Parkman, was in impact investing, which the survey revealed one-third of respondent family offices to already be engaged in. As the next generation within wealthy families continues to assume leadership positions with their family offices, he noted, the expectation is that impact investing will become an even greater focus.

Almost 40 percent of survey respondents reported that allocations to ESG-focused vehicles are likely to increase when the next generation fully assumes control. According to the survey, respondent family offices identified agriculture and food as the third most common sector for impact investments, currently constituting the most relevant impact sector for 49 percent of respondents, trailing only housing and education.

“With regard to impact investing, the general tide is: people really want to do it,” Parkman summarized. “You might see a link to why developing countries have the highest level of agricultural investment. It comes back to people wanting to invest in something they see as socially and morally good and, generally speaking, the people that need food the most are people who live in the developing world.”

Echoing discussions elsewhere in the market, Parkman said some family offices reported having been discouraged from doing even more impact investment thus far by problems of definition and challenges of measuring impact.