Institutional interest rises in listed agri market

Institutional investors are increasingly interested in the listed agriculture equity market, according to fund managers.

The interest comes amid a 6 percent hike in the S&P GSCI Agriculture Index since the start of the year and a near 5 percent increase in the DaxGlobal Agribusiness index, another benchmark for the sector.

BlackRock’s agriculture fund management team has been getting an increasing number of enquiries from institutional investors for segregated mandates, according to Desmond Cheung, fund manager of the BGF World Agriculture Fund.

First State’s Global Agribusiness Fund is another listed agri fund that is noticing a pickup in institutional interest and pension funds are also considering creating their own listed agriculture equity portfolios, according to agri investment sources.

“We have no separate mandates as of now but we are in discussions with some institutions about how we could structure a portfolio for them in the various subsectors,” Cheung told Agri Investor.

“This is obviously encouraging and a positive sign because in the past it felt like institutional investors were very hesitant to even look at the sector.” Retail investors, high net worth individuals and family offices are the mainstay in BlackRock’s $180 million fund, added Cheung.

Agribusiness stocks were out of favour at the beginning of the year but soon posted a near 20 percent rise by the end of April, according to the S&P GSCI Agriculture Index.

“We have been trying to educate investors that agriculture is a growing market with lots of interesting companies and that they can create value over time,” said Cheung. “One way the sector has been doing this is through consolidation — there have been many large M&A deals since the fund launched — but we are seeing other exciting themes as companies from different parts of the value chain start to list more frequently.”

BlackRock’s fund tends to invest into companies with a minimum market capitalisation of $100 million, although in special cases it will go below this figure, said Cheung pointing to the diverse nature of the sector.

“The agri sector is so fragmented and quite geographically diverse so there are a lot of vehicles trying to tap into it and this creates a very diversified universe for us, which is no bad thing,” said Cheung. “We have noticed the big companies are getting bigger and smaller companies are becoming more investable.”

The majority of the fund — 67 percent — is invested into large agribusinesses valued at over $10 billion, although this is less than its benchmark, the DaxGlobal Agribusiness Index. Firms of under $1 billion also account for a far greater portion of the fund than the index; 8.4 percent versus 1.2 percent.

The fund also has some exposure to primary production, although this is a small part of the investment universe.