TIAA-CREF, provider of the US’ largest private pension scheme, is launching another direct farmland investment collective, according to a handful of placement agents, consultants and agri fund managers that I speak to.
The pension provider-cum-asset management firm would not confirm or deny the chatter, citing SEC regulations about marketing investment products (which makes it seem like something’s brewing…). But whether true or not, it’s a good opportunity to highlight an important issue: institutional investors’ appetite to access agriculture and related investments directly – and the challenge this poses to third-party agri fund managers.
TIAA-CREF attracting enough capital for a multi-billion dollar co-investment collective wouldn’t be terribly far-fetched: it has a long history of successfully deploying large amounts of capital into agriculture – it currently handles $4.5 billion over 1.2 million acres of farmland and has been doing so for eight years – something very few agri fund managers have and all investors want.
And it’s done this before. Its first collective investment company, TIAA-CREF Global Agriculture LLC, closed on $2 billion in May 2012 and attracted capital from fellow heavyweight institutional investors such as Sweden’s AP2, the British Columbia Investment Management Corporation and the Caisse de dépôt et placement du Québec, Canada’s second-largest pension fund.
As well as investing alongside such an experienced player, the platform also offered these institutions an alternative structure to the 10-year, ‘2-and-20’ model that a number of market participants have been complaining about. The structure, a limited liability company, is essentially a co-investment platform that many investors crave: no fees, no limited time frame and high transparency on the direct investments it makes.
Jose Minaya, head of natural resources and infrastructure investments at TIAA-CREF, told me back in April that the company structure aims to invest over a 20- to 30-year time frame, but the model could continue for even longer; there is no end date and for an illiquid and long-term asset class such as farmland, which is an attractive proposition.
TIAA-CREF can also select and secure the best on-the-ground land management firms to steward its investments due to its size and status, a placement agent told me. “This is a big challenge for other agri asset management firms.”
And since many institutional investors are not sophisticated enough, or haven’t the internal resource or expertise to determine which on-the-ground land management firms they should work with themselves, they can rely on bigger players such as TIAA-CREF to help them, he added.
Other agri fund managers are also victims of the relatively small size of their agri investment offerings – unable to increase their allocation with an existing manager that is closed to new investment, institutions will look for opportunities to up their exposure elsewhere; much like venture capital investors were forced to when deal volumes were low, argued the placement agent.
“My feeling is that the institutional investment management market in agriculture will be a closed shop to commingled fund managers as TIAA-CREF gains more market share with trained and experienced managers,” he added.
This is of course quite a dramatic view; it is unlikely that all institutional investors will fit the mould for TIAA-CREF (and vice versa), or want to. Many smaller institutions, with fewer staff, are likely to prefer the third-party fund manager approach to the asset class, and TIAA-CREF itself is not immune to approaches from other fund managers either; it is understood to be in talks with UBS about its Australia and New Zealand investment offering, for example.
And they aren’t the only ones creating ways for institutional investors to invest more directly; Adveq Real Assets launched a co-investment platform in February. Sure, the platform is linked to its fund and most participants are likely to be investors in that fund, but it offers institutions an option to increase their agri allocation outside of the fund structure.
TIAA-CREF launching a new collective investment company does not spell great news for agri fund managers in the short term, but the industry would do well to take note of the investors that participate and how they want to develop their agri exposure in the future; this should help other agriculture asset managers to mould their own offerings.
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