Hedging costs help force liquidation of responsAbility retail ag fund

The Swiss impact asset manager said closure of the Fair Agriculture Fund did not reflect any change in investor demand for exposure to the vehicle, which had invested more than $1bn across 52 countries since 2011.

Interest rate pressure and related hedging costs sapped already-struggling returns and prompted responsAbility to liquidate its agriculture-focused retail fund late last month, according to a senior communications manager at the Swiss impact asset manager.

responsAbility’s Fair Agriculture Fund was launched in 2011 and offered retail investors in Switzerland the opportunity to support investments designed to help improve living conditions in rural areas of emerging economies. Under Swiss law, retail investors invest in Swiss francs and are taxed on earnings of the fund in whichever currency the vehicle invests in – in this case, US dollars.

Though the Fair Agriculture Fund pursued currency hedging strategies, senior communications manager Ulli Jaret explained to Agri Investor, such expenses had risen with changes in exchange and interest rates over the past three years to the point that 90 percent of investors in the vehicle were seeing negative returns.

In addition, she said, because poor performance had already prompted some outflows from the fund in recent years, responsAbility decided to liquidate the Fair Agriculture Fund on November 21.

“We could have gone on, but the question was, going forward, if we accept new money now, is this fair?” said Janett.  “We have fiduciary duties for this money, and it is our duty to treat investors equally and fairly. By closing the fund now, we ensure everyone has access to the same level of liquidity within the fund.”

The Fair Agriculture Fund was one of three investment vehicles managed by responsAbility that include agriculture within its mandate, along with distinct debt and equity vehicles that target institutional investors.

Valued at $89 million in October, The Fair Agriculture Fund supported more than 200 agricultural businesses cooperating with 2.3 million smallholders in 52 countries through more than $1 billion in investments over the course of its life.

Janett said investing in sustainable agriculture in emerging economies had proven very popular among retail investors in Switzerland, who have few other options for supporting such investments. Investments from the fund included support for cocoa production in Ivory Coast, grape farming in Peru and distribution services for coffee farmers in Malaysia, among others.

“It’s not a lack of interest among investors,” Janett said. “It’s really the performance of this Swiss retail fund and this is heavily influenced by the exchange rate and difference in interest rates between the US dollar and the Swiss franc, which is the investment currency for the vast majority of investors.”

Swiss retail investors will still have the opportunity for exposure to sustainable agriculture through responAbility’s flagship retail fund, the Global Micro and SME Finance Fund, which has a 10 percent allocation to ag.

Rather than suggesting any judgement about the agriculture market, said Janett, the fate of the Fair Agriculture Fund demonstrates how fund structures are not viable when earnings cannot counteract unexpected currency differences.

“I don’t know if people in America necessarily are aware that this is something the rest of the world faces,” she said.