Kilter Rural closes Australian Farmlands Fund on A$60m – exclusive

The Australian fund manager describes the close as a ‘good result’ and expects to deploy all of the capital within the next few months.

Kilter Rural held a final close for its Australian Farmlands Fund on A$60 million ($42.8 million; €37.4 million) at the end of 2021, the fund’s investment manager Angus Ingram told Agri Investor.

The 10-year closed-end fund was launched in October 2018 and seeded with four assets worth A$20 million. The vehicle targets a net IRR of 10-12 percent, with a target 50/50 split in investments between farmland and water.

For farmland, the fund acquires underutilized or mismanaged properties where value can be added, or farms that are seeking additional capital to expand operations.

Kilter Rural had initial ambitions to raise between A$250 million-A$300 million for the vehicle but this was pared down over time, with a final date for the close of fundraising set for the end of 2021.

“We are really positive to have raised A$60 million,” Ingram said, saying the timing of the close was linked to the fund’s strategy rather than any fixed fundraising amount.

“The fund was seeded with A$20 million so it was viable from an investment perspective right from the start. Because the strategy is one of purchase, develop and operate, we wanted to make sure that the purchase phase wasn’t pushed out further than it should be – if you pushed it much further you would potentially be purchasing and developing properties without operating them to generate returns for investors. That’s why the end of December 2021 made sense as the point where we closed to optimize that investment capital – that was a pretty straightforward decision.”

Ingram said that the fund had been busy purchasing properties and water entitlements in the past 18 months, with the portfolio set to reach 10 properties and approximately 4,000ML of water entitlements. All the properties are located in a single aggregation in north-central Victoria.

The vehicle is almost fully deployed, he added, and would reach full deployment within the next four to six months.

Fundraising had been “challenging,” Ingram said, due to the difficulties with carrying out in-person farmland inspections, but the firm traction with offshore investors in the past six months helped thanks to its strong impact credentials.

“There were a number of offshore investors, particularly from Europe where they are seeking impact investments with really substantiated credentials – by that, I mean impact investment houses who do deep diligence on the impact merit of their funds to avoid greenwashing. Those houses want to see that you can measure and verify the X amount of carbon abatement or biodiversity impact [that you are promising],” Ingram said.

“That’s one of our competitive advantages. The Australian Farmlands Fund is the only agricultural fund listed with the Responsible Investment Association Australasia – it has to pass a rigorous test to be on that list.

“We are taking properties that had, on average, 3 percent remnant native vegetation on them – and we’re revegetating them to between 20 and 30 percent. That’s a native species reforestation.”

Any potential returns uplift achieved through these regenerative farming practices, such as in the form of carbon credits, is not included in the fund’s forecast 10-12 percent net IRR.

Kilter Rural manages two other open-end vehicles focused on water: the Kilter Water Fund, a straight play on water in the Murray-Darling Basin; and the Balanced Water Fund, an impact investment vehicle launched with The Nature Conservancy in 2015.