Family offices offer promise, not salvation

Smart, less risk averse and focused on the long term, family offices have what it takes to help build agriculture into a mainstream asset class. But for it to happen, the circle needs to widen.

Family offices tend to be a discreet bunch. Like family members discussing a matter important to the clan’s future, they gather behind closed doors and let little of their internal conversations leak to the outside world. This week, however, they are highly visible on our website: as we write this letter, a report on their expectations for 2017 is topping the list of our most-read stories.

That attests to the attention they receive within the agri community. Early birds to the sector, they have acted as cornerstone investors in the asset class’s first blind-pool funds. Some have since graduated to direct investing. Eric Jackson, chief executive of AMERRA-backed Pipeline Foods, recently confessed to being “blown away” by their appetite for the asset class. And they are also at the vanguard of latest trends: they have a strong appetite for tech and are pushing wealth managers to design strategies focused on sustainability.

“It also applies to foundations and endowments, but we haven’t see that as much directly. They’re working through other platforms, like outsourced CIOs,” Timothy Cunningham, president of placement agent Touchstone Group, told us this week.

Family offices are their own masters and, more often than not, that makes them suitable to invest in agri. Less set in their ways, they tend to be more curious, less risk averse and resolutely long term. Their return expectations, as far as core agri is concerned, are generally in tune with reality – mid-single-digit current cashflow returns, plus margin for asset-level improvements and a potential capital-appreciation bonus. Importantly, they have serious money: recent estimates put their wealth at $4 trillion.

It’s therefore natural to think that, as agri strives to become a more established asset class, family offices will play a prominent role. To an extent, they already have: fund managers tell us that they provide both network and insights at investor gatherings. But hopes that family offices will lift agriculture through its teen years alone need to be put in perspective.

In a recent survey of 262 family offices averaging $921 million in assets, UBS and Campden Research found that more than 90 percent of them planned to maintain or increase their allocation to the sector. The figure is encouraging, but it masks two important caveats. First, most family offices start from a rather low base: agriculture accounts for just 1.7 percent of the average portfolio covered by the report. Second, many more would rather keep their allocation as it is than boost it – just under one-fifth sit in the latter camp, compared with 70.6 percent favoring the status quo.

On balance, obviously, the survey’s message is positive. But it raises questions as to how many family offices currently not invested in agri will seek to do so in the years to come. Beyond those comfortable with the sector because of their farming, tech or agribusiness heritage, is a new wave of agri-hungry family offices in the making? Cunningham suggests the answer is nuanced.

“There are several kinds of family office investors,” he says. First, there are those who will only invest in “their own little industry.” Then there are the traditional allocators, who favor safer funds, and the opportunistic family offices, who enthusiastically seek new ideas. And finally, there are the fully fledged fund managers, who invest directly and have their own staff.

Generalizing behavior among such a diverse crowd is no easy task. Indeed, Cunningham seems unsure the category as a whole is spearheading a move in agri. He does note, however, that managers tend to like having family offices in their funds – because it attracts other family offices. “I think they are comfortable investing with each other.”

In that respect, they do not differ so much from their institutional peers. And while they’re doing a good bit to help agriculture mature, family offices should not be seen as the asset class’s sure-fire ticket to the mainstream.

Write to the author at matthieu.f@peimedia.com