Yesterday kicked off a sale process that’s probably going to be watched by farmland investors in many markets. Rushy Lagoon, Tasmania’s largest farm, encompasses four dairies and an area approaching 22,000 hectares; its owner, a rich New Zealander, is looking to sell it for more than A$65 million ($51 million; €42 million).
CBRE, which is marketing the sale, makes no secret that international investors are a prime target. This is not surprising. Despite global appetite for Australian agriculture, the local superannuation industry remains largely unexposed to prized assets located in their own backyard. There are a number of reasons for this, which we explored last week: local gatekeepers have few ag-focused staffers, supers still don’t know where to place agri and they tend to have a lower appetite for illiquid strategies.
A lot of this can be traced to competitive pressures these institutions have to confront. “With the productivity commission investigating default superannuation arrangements and members being able to switch funds easily between providers, the cashflow in superannuation is fiercely contested within certain sections,” says Pat Lash, a REST Super franchise manager who wrote a report on the topic.
But their cautiousness also owes to less structural reasons. A number of funds that got involved five or six years ago, when consultants and influencers had a first go at engaging with agriculture, got their fingers burnt when some assets did not perform as expected (at the time, foreign capital did not rush in to prop up values). Sometimes, ag investments were also made for the wrong reasons, leaving little room for upsides. “It was not really about driving successful agriculture, it was about tax advantages,” an insider tells us.
The outcome of this has been to cast a negative light on the asset class. It has also put local gatekeepers off recommending agriculture again. This suggests supers are not about to get into farmland like a herd, but it also points to what ag proponents should strive for if they are to win them over: success stories. Some are already available: market connoisseurs cite QIC’s investment in North Australian Pastoral Company, and the Australian ag ventures of Canada’s PSP Investments.
There are important caveats. PSP did catch Australian ag at the bottom of its curve, allowing it to benefit from favorable valuations across a range of sectors. That window has closed somewhat, but it doesn’t mean the pension’s success can’t be repeated, says Jennifer Wainwright, managing director and chief executive of Aux Venture. She describes large swathes of Australian ag as “capital starved” and ripe for further development, notably in the country’s North. Finding such opportunities, she says, requires a little digging.
The second caveat is probably more worrying. A couple of weeks ago, the Australian government introduced a law requiring all property potentially bringing a foreign investor’s Australian farmland holdings to more than A$15 million be advertised for sale for a minimum of 30 days. No observer we spoke to – and we’ve canvassed a few since the announcement – thinks the new regulation will do much to blunt foreign investors’ edge in farmland transactions. It will, however, make it more difficult to attract capital earmarked for on-farm development, because it could complicate joint ventures and co-investments.
Early evidence also suggests it is already contributing to keeping some assets off-market, diminishing dealflow. An advisor we spoke to said some owners are reconsidering their decision to sell because bringing the process out into the open would jeopardize commercial contracts. Another noted that North American investors they were connecting with a deal had been forced to change strategies.
“In their haste, the government hasn’t foreseen the broad-ranging impact this policy is going to have in Australia,” Wainwright says. “It seems like this legislative change is now impacting the very kind of group they were intending to protect.”
Australian supers will only move into agri once they fully understand what’s in it for them – and how to find the assets that correspond to their needs. That calls for two things. One, greater publicity for investments that perform well. Ironically, a majority of case studies will probably come from foreigners; the government should still strive to make them visible. Two, an advisory community that knows what it’s talking about, and capable of tailoring investment solutions to supers’ needs. That universe may grow organically as the asset class develops a track record.
Getting supers into agri can be done, in time. But it’ll probably have little to do with measures taken by the government to tip the balance in their favor.
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