At a meeting of the Kentucky Retirement Systems’ Investment Committee on December 20, the $22.1 billion pension’s deputy chief investment officer Anthony Chiu reported [link accessible only to US-based readers] that while Ceres has traditionally had more attractive deals than it has had capital to deploy, the recent rise in farmland prices has slowed the pace of transactions and attracted additional investors to the fund. As a result, Ceres has established an investment queue of about $190 million and it will take 12 to 24 months for KRS capital to be deployed, he wrote.
Ceres Farms will seek net returns of between 5 and 9 percent through a strategy focused on acquisition and leasing of Midwest farmland properties. The vehicle’s management fee is 1.25 percent of NAV and its performance fee is 12.5 percent of profits over a 2.5 percent hurdle.
“Ceres Farms focuses on US-based, row crop farmland below the institutional radar by size (100-6,000 acres) and value ($200,000 – $20 million),” KRS staff wrote. “The inefficiencies upon which the strategy looks to capitalize are driven by the extreme market fragmentation, lack of transparency in farmland assets/transactions, a lack of timely data flow and prerequisite for asset specialization and relationships which take significant time to accumulate.”
The $1.3 billion Ceres Farms vehicle currently holds 156,000 acres in 11 states, with about 80 percent of its acreage located in Indiana, Michigan, Ohio and Kentucky, according to its KRS presentation. The vehicle has supported 474 acquisitions and achieved IRRs of 10.9 percent over the past year and 10 percent since its 2008 inception.
KRS staff noted that while the firm has relationships with more than 140 tenants, Ceres is diversified enough that each of its two largest tenants each manage just 6 percent of its total acreage and it top tenants comprise 36 percent of the portfolio.
Three quarters of Ceres’ properties are devoted to corn and soybeans and it also manages others devoted to specialty crops including green beans, peas and potatoes. The firm has spent $17.6 million in value-add projects on its properties over the past three years, according to its presentation to KRS, which detailed spending on improvements to irrigation, drainage, storage and conversion projects.
Ceres also manages $42 million of assets across two Sustainable Food and Agriculture funds managed by employees located in Boston.
Chiu added in his memo that the commitment to Ceres Farms will eventually constitute more than 1 percent of overall assets and contribute to KRS’ Real Return portfolio that is designed to constitute up to 3 percent of assets following a March allocation policy update. KRS’ existing investments include an ag-related vehicle managed by The Riverside Company and a commitment to AMERRA’s AMERRA Agri Fund II.
As part of its due diligence, KRS reported reviewing 26 comparable farmland and agriculture investment strategies and visiting Ceres-owned properties in Indiana and Kentucky.