Family offices signal appetite for agri despite lower return expectations

As they hunt for yield, a vast majority of family offices intend to maintain or increase their allocations to the asset class, according to UBS.

Almost one-fifth of family office investors intend to increase their agricultural investments, fresh research shows.

The Swiss bank, which polled 262 family offices averaging $921 million in assets in collaboration with Campden Research, found that 20 percent of family office allocations went to private equity in 2016.

“Amid a backdrop of geopolitical and economic uncertainty, the family office space is bolstering in activity, advancing in structure and growing in the level of wealth that is being managed,” the report said. “In the hunt for yield, family offices have been turning to more illiquid and higher-risk investments.”

Agriculture accounts for just 1.7 percent of the average portfolio covered by the investor survey, but the research suggests that number could rise in years to come.

UBS finds that 19.6 percent of family offices surveyed intend to increase their level of agricultural investment, with 70.6 percent planning to keep it steady and the remainder looking to decrease their exposure to the sector.

A key theme discussed in the report is the challenges family offices face in sourcing and performing due diligence on direct investments.

While the report finds that just 5.6 percent of operating businesses held directly by family offices are in the combined agriculture, forestry and aquaculture sector, Pipeline Foods chief executive Eric Jackson told Agri Investor earlier this week that recent conversations with investors have left him “blown away” by the level of interest from family offices.

“It’s clear in my mind that the LP community is looking for more direct opportunities – whether it’s direct as a sidecar, through an LP that’s behind our PE shop or through another LP,” he said.

On returns, the report finds that 2016 benchmark returns of 7.6 percent for agriculture surpassed expectations of 7.4 percent, but also that family office respondents’ return expectations for this year have dropped to 5.9 percent.

In May, Red Reef Partners managing partner Suzanne Petrela told Agri Investor that family office investors are often less concerned with hard hurdles than other institutional investors, and that their long investment horizons can be an asset in building portfolios that perform well over the long term.

“Many of them are looking for a mid-single-digit current cashflow return, with upside from asset-level improvements,” she said. “With capital appreciation, they expect a total return in the low teens, depending on lease structure, region and what they’re growing.”

The report also highlighted what it called the “flourishing trend” of environmental, social and governance considerations among family offices.

The survey found that 28.3 percent engaged in impacting investing last year with direct private investment, private equity and venture capital being the most common investment approaches. According to the report, 40 percent of family offices expect to increase their allocations to impact and ESG-centered investments, with 43.5 percent of respondents identifying agriculture and food as sectors that are particularly relevant to reaching this objective.