Family office capital can provide an important stepping stone for agri investment projects, particularly in the start-up phase, ahead of an institutional build-out.
There is often a lot of talk from agriculture asset management firms about institutional investor interest, demand and targets. But when you dig a little deeper, the important role of family offices is uncovered. In many ways this investor base is a frontrunner for the sector and it should be embraced, particularly by newcomers.
We recently polled Agri Investor readers as to which types of investors they felt were showing the greatest amount of interest for agri-related funds and deals. Family offices came up top (with 33 percent percent of respondents selecting them), ahead of institutional investors (31 percent), high net worth individuals (23 percent) and development finance institutions (11 percent).
The results shouldn’t come as a surprise. The buying power of family offices, and high net worth capital more generally, is increasingly being used to fund agriculture and agribusiness investments.
This capital can be deployed in smaller amounts, more nimbly and often takes a more innovative path than commitments made by committee-bound, rule-encumbered institutions. There are also some appealing tax breaks in countries such as the UK and the US for family offices and individuals investing in farms or forestry.
All of this makes family offices and individuals a leading source of capital for start-up and emerging market projects in particular.
“Institutions are not very good at forestry start-ups,” Tobey Russ, chief executive at Forest First, a Colombian forestry company, told me last month. “They are more comfortable accepting a lower return on more mature assets.”
Some firms are finding family office support can help get their operations started. For example, Miro Forestry, an East African forestry company, launched a pilot project with just $25,000 from individual investors. That enabled it to develop a track record to show to institutional investors; it has now raised $20 million of its project’s $50 million target, half of which was from an institutional investor.
Forestry is just one example. The use of family office capital as a catalyst for further investment ranges from cocoa farming in Nicaragua to Romanian farmland acquisitions, African agribusiness deals to Latin American livestock production. It has also reached beyond primary production; for example, agtech VC firm Cultivian Sandbox Ventures has garnered most demand from family offices as the sector was “too unproven” for institutions in its early days, according to managing partner Ron Meeusen. Only now, six years later, is he noticing real demand from institutions.
Family office and high net worth support for agri investment is not just the domain of small, emerging market projects, by the way. Even multi-billion dollar projects like Australia’s Integrated Food and Energy Developments, the vertically-integrated sugar, guar gum and livestock operation in Queensland, are targeting family offices alongside institutions.
Of course the amount of capital managed by family offices – $6.3 trillion globally according to Citi Private Bank, compared to north of $30 trillion for global institutions – presents some limitations to the investor base’s ability to really grow agri as an asset class.
While some family offices may allocate significant portions of their investment portfolios to agri opportunities – some as high as 50 percent – it still gets nowhere near filling the agriculture investment funding gap. The UN’s FAO estimates that developing countries alone need some $83 billion of investment into food production by 2050 to feed their populations, for example.
But the ability of entrepreneurial family offices to pave the way for institutional investors with deeper pockets cannot, and should not, be overlooked.
p.s. I will be downstairs in the Audley pub, Mayfair, tomorrow evening – Thursday 21 August – from 5.30pm at 41-43 Mount Street, London, W1K 2RX. Do drop by to meet me and your agri investment peers. First round on me!
If you are unable to come but want to talk about your views, do get in touch at Louisa.email@example.com or use our snazzy form to submit a story idea.