Kempen plans global strategy for SDG-focused farmland fund

Kempen Capital Management’s SDG Farmland Fund will seek to establish a global portfolio that could include potatoes in Idaho, olives in Portugal and kiwi fruits in New Zealand, its director of private markets told Agri Investor.

“We want to build a truly global fund,” Edzard Potgieser said of the vehicle, which secured a €200 million seed commitment from Dutch pension Stichting Pensioenfonds Post NL in mid-April. “Not only the US and Australia, like some other funds you see, but also a significant allocation to Europe, which is important for our European investor base.”

The open-ended SDG Farmland Fund targets net returns of between 6 percent and 8 percent over a 10-year horizon, comprised of between 3 percent and 6 percent annual return from crops and 1 percent to 2 percent annual productivity improvements over the long-term. Plans call for the majority of its investments to be located within the OECD, and up to 15 percent of capital allocated to markets outside of the developed economies grouping.

Potgieser said Kempen plans to focus the SDG Farmland Fund on farmland transactions between €5 million and €20 million and construct a portfolio split evenly between row and permanent crops. The firm has so far drawn from the vehicle for one farmland acquisition in Portugal, the details of which Potgieser declined to disclose.

Co-head of private markets Richard Jacobs told Agri Investor pension funds are likely to be the predominant investor type within the SDG Farmland Fund but could also attract family offices and insurance companies. The fund has a five-year lock-up, Jacobs added, and Kempen intends to raise up to €1 billion for the vehicle over the next two to three years.

Kempen’s LPs are mostly pension funds from the Netherlands, the UK and mainland Europe. Such investors, Jacobs said, are particularly interested in investments that can provide a return while contributing to broader biodiversity and climate change initiatives.

The SDG Farmland Fund was created, he explained, after a group of pensions that included Stitching Pensioenfonds Post NL asked Kempen if it could create a vehicle that helps promote a shift toward sustainable food production and supports soil health, biodiversity and water quality. Jacobs said the pension group stressed that any strategy Kempen developed would have to include key performance indicators allowing for consistent measurement of environmental and social impact over time.

“On the financial side, pension funds are looking for alternatives to their fixed income, or even often to real estate – which has not been the best diversifier during the corona year – and their wish to do more on the impact side,” Potgieser explained. “Many see agriculture has the ability to combine those two in a good way.”

Kempen’s strategy links its farmland investments to societal objectives described in the United Nations Sustainable Development Goals. Among the goals Kempen positions its investments as contributing to include efforts to eliminate hunger (SDG 2), improve access to clean water and sanitation (SDG 6), and encourage sustainable management of natural resources (SDG 15).

Potgieser said although Dutch pensions have traditionally not been active in equity investments in global agricultural of the type offered by the SDG Farmland Fund, many have invested in agricultural mortgages to support local economies. Roughly over the past two years, he said, there has been a change in their perspective.

“Whereas, with some investments, they [Dutch pensions] like to make a local impact more than a global impact, when it comes to climate, biodiversity and those issues; they realize that in order to really have an impact, you have to think globally,” he said.