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Are family offices enough?

Some asset management firms are focusing purely on family office capital to fund agri investment projects.

Family offices continue to be a talking point with agri investment managers. Typically unconstrained by investment committees and strict allocation models, this community of investors will often relish the eclectic and contrarian. They have less protracted due diligence processes and can take decisions fast. And they can also pursue an investment thesis with a passion that institutional sources may struggle to match.

That said, managers may find them a high-maintenance LP – never shy to criticise and at times impatient for results – and word has also reached us of occasions where capital calls were not met by family offices whose priorities have suddenly shifted.

This week I met the chief executive of a firm that has decided to focus solely on attracting family office capital for agriculture investments. (The firm works with large institutions when it comes to other more mainstream asset classes.)

“We have no interest in expanding into the institutional space in agri because there is enough interest from family offices and private banks to be scalable and they are also able to act relatively quickly and take on more risk,” Chandima Mendis, chief executive of Emerging Star Asset Management, a Geneva-based firm, told me.

This investor base is open to pursuing different strategies in different geographies as opportunities emerge, for example, leasing land for agricultural operations in Latin America instead of owning it is one strategy Mendis’ clients have had the foresight to consider, whereas much institutional farmland investment has focused on land ownership, he argues.

I have talked in the past about the benefit of family office capital in the early stages of agri investment when relatively small sums are needed to get a fund or a project off the ground, paving the way for larger institutional investors.

But in speaking to Mendis it seems this pool of investors could be enough for some investment firms to achieve meaningful scale. This is particularly the case in trickier markets that require flexibility around structures, timing and strategy. Purchasing distressed dairy assets in Australia is another strategy that I was told would be well suited to family office capital; these opportunities often arise in a short time frame and require creative approaches to deal structuring.

Citi Private Bank has estimated that the global pool of family office capital sits at a mighty $6.3 trillion, so it would take only a small portion of that total to be deployed into agri investing to make family offices a key part of the investor landscape. And the majority of agri fund managers out there ­are still first time funds, raising sub-$300 million and receptive to commitments from family offices of $10 million or less.

And even larger agribusiness funds welcome the capital, such as Paine & Partners Capital Fund IV, which closed oversubscribed on $893 million earlier this year.

But fund managers should be aware that several family offices focus on direct investment opportunities or impact-focused funds in developing nations and there will naturally be as many differences as similarities in each family office’s investment strategy. So get to know this community and its nuances as extensively as possible. It could be a more important source of capital than previously thought.

What do you think? This will be among the topics discussed in Paris later this month, where I am chairing a panel about agriculture investing at our sister publication PERE’s Family Office and Private Investor Forum. Please send along any questions you have for the family office community who are attending, or join us there!