First State Super has paused future agriculture and water investments with Blue Sky while the manager continues to experience reputational issues, its real assets head told Agri Investor.
Mark Hector, infrastructure and real assets portfolio manager for the A$95 billion ($67 billion; €58 billion) Australian superfund, said its investments have continued to “go well” and are “relatively immune” from the broader problems Blue Sky has faced since the publication of a scathing report by short-seller Glaucus in April.
“The particular individuals we’ve been dealing with [at Blue Sky] are honorable, high-quality individuals. Having said that, when something like that happens to a fund manager, for an organization like ourselves that focuses a lot on reputational risks, obviously we’ve put a pause on future investments with Blue Sky and are watching that space appropriately,” he said.
First State Super has approximately A$350 million invested in agriculture and water, excluding the recently announced A$200-A$250 million investment to acquire 100 percent of independent chicken farmer Proten. The Proten investment has been made through manager Roc Partners.
The superfund invested “a few hundred million dollars” in a water rights portfolio with Blue Sky from April 2015, Hector said, as well as a sale-and-leaseback investment for almond producer Select Harvests in August of that year. The combined investments have generated a net annual return of 12 to 14 percent since inception, a First State Super spokeswoman said.
When asked whether efforts by Blue Sky to restructure the business and restore confidence were having a positive effect, Hector said no ill effects were being felt so far, but added the superfund would consider taking the investments in-house if necessary.
“At this stage, we’re not seeing material adverse benefits to the existing portfolio that we’ve acquired under those guys through both the water rights and Select Harvests,” he said.
“In a dire scenario where Blue Sky was no longer able to manage those, we’ve at least got those investments in the ground, and we’re confident that if we needed to change managers or manage those internally, there are those alternatives.”
Hector said agriculture and water were a “good diversifier” to other traditional infrastructure asset classes and he felt First State Super had a “first-mover advantage” among domestic superfunds in Australian ag.
“It is quite a fragmented industry – you don’t see all of the same players that you do in the traditional infrastructure space. There’s a lot of smaller deals within ag, so in terms of making pure direct [investments] that’s more challenging,” he said.
First State Super’s A$95 billion of total assets under management includes about A$20 million from State Plus, the financial planning business it acquired in 2016. Of the A$75 billion of ‘pure’ First State Super money, around A$2.5 billion is invested in infrastructure and real assets.
That figure excludes almost A$1.3 billion of equity that will go towards the superfund’s purchase of 100 percent of Victoria’s land titles business, the largest equity cheque the fund has ever written for a single direct deal in any asset class.