Old Mutual Asset Management’s subsidiary has secured $40 million in hard commitments from two South African pension funds for the Old Mutual African Agricultural Fund, a pan-Africa farmland fund.
The fund is the third agricultural offering for Futuregrowth Asset Management, the fund’s manager, and was launched alongside Futuregrowth Agri-Fund II, a South Africa-focused fund, in April. (The fund is also known as Old Mutual Agri Fund II). Futuregrowth pursues a buy-and-lease investment strategy across its agriculture funds.
The pan-Africa fund is targeting between $250 million and $300 million and while it has no specific country focus, it will target countries with international export capabilities and other infrastructure to support exports. The firm is assessing opportunities in Burkina Faso, Ethiopia and Morocco, according to Smital Rambhai, product manager for agricultural funds at Futuregrowth. It will exclude South Africa.
Rambhai and colleagues colleagues decided to launch the pan-Africa fund to tap attractive growth, lease yields and a lack of competition in the farmland sector elsewhere across Africa, Rambhai told Agri Investor.
The Futuregrowth Agri-Fund I closed in December 2013 on R462 million ($41.8 million; €32.9 million) and aims to outperform the South African consumer price index plus 10 percent. The 12-year fund is fully deployed into four farms.
Futuregrowth Agri-Fund II is still open and targeting R1.5 billion. It already has R1 billion in hard commitments and is talking to another three to four investors ahead of a final close in October next year. Most of Futuregrowth’s investment clients are domestic pension funds, according to Rambhai.
Despite Futuregrowth’s success in attracting commitments, South African pension funds still find farmland investment a relatively new concept.
They are not used to private equity in their portfolios as until recently there was a conservative cap on how much exposure pension funds could have to each asset class. As a result, LPs are classifying Futuregrowth’s assets in a number of asset classes including unlisted property as well as private equity,” said Rambhai.
But the government has now encouraged further investment into private equity, and farmland in particular, by initiating public-private investment partnerships, he added.
Favourable land rental yields that reach as high as 8 percent a year in South Africa are a big draw for investors compared with other global markets such as the US and Brazil where they are not as competitive, argued Rambhai.
The firm is committed to social impact principles in all its agricultural offerings – it uses part of the rental yield to improve housing for farmworkers and provide education and healthcare for them and their families – and recently signed the UN’s Principles for Responsible Investment. “Our investors really appreciate that element of our funds,” said Rambhai.
For this latest pan-African offering, the firm is taking precautions. “We’re in talks with the Multilateral Investment Guarantee Agency to organise insurance cover for investment into other African countries, and we’re confident in their ability to resolve issues before they arise,” said Rambhai.
Outside of farmland investing, Futuregrowth specialises in debt products and has a range of development funds too. It manages around R140 billion of assets across its product range, according to the website.
The firm uses a UFF Agri Asset Management as a placement agent.