Jim Gasperoni, head of real assets at Aberdeen Asset Management, an investment manager with $402.9 billion in assets under management, speaks to Agri Investor about the evolution of farmland investing and the institutionalisation of the asset class.
How have the farmland investing opportunities for institutional investors evolved?
If you wanted to invest in farmland in the late 1990s and you were a large public pension plan or a large endowment, you could probably invest in a separate account-oriented vehicle that you could tailor a bit to what you wanted, but the availability of the investment opportunities offered by those structures was fairly limited. Mostly, there were very stable, long-term cash-oriented investments in the farmland space.
That has changed over the past 20 years. Just like real estate, energy and some of the other asset classes, the number of folks who have decided that they wanted to focus on being a farmland-oriented private equity manager has increased. What we, as an investor, can do today has become far more interesting.
In response to that, there has been an uptick in institutional appetite for farmland. The more investable the asset class has become, the easier it is for investors to say: ‘Farmland is interesting because I actually can access it in a value-add context, whereas 20 years ago, it was much more difficult’.
Where are the major value-add farmland opportunities?
For many farms, there is an ownership transition that needs to occur over the next 10 to 15 years due to the ageing nature of not just the US farmer, but farmers generally worldwide. Families are still owners of farms by a wide margin, whether you look at it as number of farms or value of farms. With long-term patient capital today, there are certain efficiencies that can be achieved by acquiring assets from farmers whose children are not interested in taking over the family business.
One can make the argument that an investor may benefit from the increased institutionalisation of the asset class that might occur in the future. But the opportunities for acquisitions and the opportunities to increase yields at the farm level through active management which exist today might not exist in the same magnitude 10 or 15 years from now.
Do you see parallels between these shifts and other agri sub-sectors?
It’s completely different, but there are similarities with the way timber was institutionalised as an asset class over the last 20 years. Timber is now regarded by many as an asset class where you need to have a long-term view; the number of levers that you can pull to extract value in the short term are not as numerous as they were 20 years ago. There’s an element of the farmland opportunity that exists today that feels like that.
What issues should investors consider when choosing a farmland fund manager?
Farmland has been, and is today, a very local business. With an ownership regime that is as fragmented as farmland is, it would be very difficult for an agriculture opportunity fund based in far-off financial centres to be able, on its own, to navigate the ownership structure and the farmer/owner network, and the tenant network in local markets, unless you spent significant time understanding the subtle nuances.
There are certain folks who have a good line of sight about what land to buy, what you can do with it, who you would buy it from, and who is tied into networks that help to identify opportunities. That individual, or individuals, might not be able to satisfy the many requirements needed to manage third party capital for institutional investors.
Most of the farmland funds that we see require a level of development in order to show both of those attributes, and investors must understand the organisational risks they are assuming when considering backing some of these newer teams. You have to take some emerging-manager risk if you are investing in this asset class.