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Institutional shift?

Conversations in London this week centred on a potential shift in institutional demand and the surprise upwards tick in commodities futures.

US institutional investors have long led the pack in terms of alternative investments – and agriculture and agribusiness are no exception.

Conventional wisdom holds that US institutions have been relatively active in making private agriculture and agribusiness investments both at home and in some emerging markets like Latin America. But, as one Singapore-based asset manager pointed out to me over coffee this week, European institutions are by contrast thought to be very inactive with around only six to seven having made substantial investments.

“Most have never even allocated to developed markets, let alone emerging markets,” he said.

That may be starting to change, however. Another fund manager I met this week told me he was surprised at where the demand for his latest vehicle had come from: a club of Mediterranean institutions.

“When we were predicting the demand base for the fund this time last year, we were 100 percent wrong,” he said.

Other European pools of capital have also sprung into action lately, such as the consortium of UK pension funds that bid for the Co-Operative’s farm business — and are now understood to be analysing investment opportunities in the US and Eastern Europe.

These are just two examples, and while various market sources suggest fund managers expect a shift in their investor base to include more ex-US institutions, those operating in emerging markets are not convinced European investors will embrace emerging market agriculture opportunities with any speed.

Commodity conundrum

Indications that commodities futures were moving up – in Paris, wheat gained 0.9 percent for a January delivery, for example – surprised some asset managers yesterday and raised questions about the viability of certain investment strategies. US farmland managers were concerned that the window to invest at subdued values would disappear, but, on the flipside, said that supported commodity prices in the future could only be a good thing for farm operating profits.

A combination of factors was said to have contributed to the upward futures move, according to sources and commentators, including falling oil prices, the threat from El Niño weather system to agriculture production in South America; and Russia’s stockpiling of agriculture commodities on the back of poor mining yields.

All this has coincided with more chatter from fund managers about windows of opportunity for investment. One Australian farmland manager argued that he now needed to deploy capital more quickly than he did in the wake of the global financial crisis. “Vendors are no longer as generous with their time as there is more competition in the market,” he said.

This competition is not purely from the investment community or local farmers but from strategic players that are becoming increasingly active in the sector. Institutional investors should be careful not to miss out on opportunities by deliberating too long.

Are you noticing a change in the geography of investors interested in your products? And how does the commodity-pricing environment impact these conversations? Get in touch at Louisa.b@peimedia.com