Inflation’s rising profile among US institutional investors is positive for those raising agricultural and real asset funds more broadly, according to Aberdeen Asset Management senior investment manager Ryan Sullivan.
Sullivan told Agri Investor that after years in a very low inflationary environment, central bank policy, tightness in US labor markets and potential increases in commodity prices have inspired investors to start thinking about inflation-sensitive assets.
“As we talk to investors, the topic of inflation is back on top of mind,” Sullivan said. “We hadn’t talked much about it for the past number of years, but inflation is now coming back into the conversation in a way that is obviously positive for an area like real assets and specifically farmland.”
Recent months have seen at least one example of investors reassessing their portfolios’ long-term inflation positioning in a way that supported a move into agriculture.
Last month, the Ohio Police & Fire Pension Fund announced a change that saw the $15.1 billion pension shift away from a 20 percent allocation to global inflation-linked bonds in favor of a 17 percent allocation to US inflation-linked bonds. OP&F representative David Graham said in a statement at the time that the change came after extensive discussions with their consultants (Wilshire Associates) and was designed, in part, to reduce risk in its long-term allocation policy.
While the change had no immediate impact on the OP&F’s real assets investments, its board had already approved in March a proposal to devote up to 40 percent of its 5 percent real assets allocation to agriculture. In May, OP&F went on to make its first agricultural investment, committing $50 million to Agricultural Capital Management’s permanent crops-focused ACM II.
Sullivan stressed that while inflation is coming to play a more prominent role in discussions with investors, it is only part of a conversation with LPs about whether to consider agricultural investments in which other factors, such as the search for yield, continue to be a top concern. He added that the evolution of agricultural offerings in the market since the last period when investors were focused on inflation protection makes it hard to predict where investors might end up and that the need for education about the asset class remains a key fundraising challenge.
“The real question is: will inflation actually come?” Sullivan said. “People have been anticipating it for so long, and the natural argument is: ‘you want to buy insurance when its cheap’. ”