Cordillera Investment Partners, a fund management company focusing on niche alternative assets including agriculture, water rights, litigation finance and shipping, launched in July 2014. The company was formed by three former partners of Makena Capital Management, the alternatives fund house, including Agustin ‘Gus’ Araya. While working on the natural resources team at Makena, Araya made five agriculture investments. These were made across both funds and direct investments. Here Araya describes his experiences.
Of the agriculture strategies you have invested in in the past, which have been the most successful and why?
The most successful have been the alpha-driven strategies where there was a clear value creation process. I invested into one fund that developed and converted land from pasture into permanent crops – a higher and better use – and that was probably one of the most successful investments. Combining land with the value of water through water rights is another very appealing opportunity.
Another strategy we think is interesting is to think more broadly about the value chain and control the destiny of what is produced a bit more. So this means integrating downstream into a distributor or even a food brand, or arranging direct deals with off-takers.
When hiring an external agri investment management team, what do you look for?
It’s imperative to have the right sets of skills in these teams because agri is a multi-disciplinary asset class. At the core there has to be a group of people that very much understand the operating side of an agribusiness or managing farmland or a ranch, and the key is to bridge that with more financially-driven professionals. But marrying an Excel spreadsheet whiz with a boots-on-the-ground farmer is not easy. Often these two roles within a team are almost totally separate and they only interact where the two roles meet. It doesn’t work if you have the financial investor sitting in an urban area running his models and someone else running the assets. We didn’t invest in those funds.
I think it needs to be a more holistic approach, integrated into a single continuous process. If there doesn’t seem to be a real integrated approach, I will find the firm less attractive.
Geographically do you think any one region is looking particularly ripe for investment right now?
We are mostly focused on the strategy. We still think there are great opportunities within North America especially with alpha-driven strategies. Sometimes, in going abroad, there are a variety of risks that you have to think about including economics, politics and environmental, social and governance risk. We are looking globally but we are excited about alpha opportunities in North America.
How has appetite for agri changed since you started working with this investor base?
There has been growing interest from institutional clients over the last five years. This has partly been down to people wanting to diversify their portfolios into a set of strategies that differentiate from traditional public- and private-driven investments. But the challenges that remain revolve around educating various portfolio managers about different crops, strategies, geographies and so on. Agriculture is a very diverse asset class. Furthermore, the investment community is still experimenting with different structures and strategies as some agri opportunities might not lend themselves to a private equity model and so on. The asset class does present some very interesting opportunities for investors that are willing to be a bit more innovative.