LACERA adds $85m to TIAA farmland stakes with new secondaries deal

The Los Angeles County Employees Retirement Association has added to its position in TIAA farmland funds now managed by Nuveen through an $85 million secondaries purchase approved late last year.

According to materials distributed at a meeting of its Board of Investments on January 11, an $85 million investment for a secondaries purchase in TIAA-CREFF Global Agriculture – described as a farmland fund with assets in the US, Australia and Brazil – was approved and completed with an unidentified seller in mid-December. That acquisition follows LACERA’s late 2021 secondaries purchase of a $191 million stake in that vehicle and an additional $265 million to its successor fund from an unidentified seller.

Nuveen declined to comment.

GPs were the most active sellers in secondaries markets across categories last year, according to the 2022 volume report from Toronto-headquartered Setter Capital, an investment bank that focuses on the global secondaries market. The report found that pensions were the second most active secondaries sellers in 2022 – accounting for 27.6 percent of total volume – followed by insurance companies, which accounted for 9 percent of transactions.

There was at least $140 million in agriculture or timber funds secondaries transactions during 2022, according to Setter’s report, which is based on an annual survey of market participants. It found the 62 percent decrease from the previous year’s volume in ag and timber secondaries was the largest drop in activity across categories that also included private equity, real estate, infrastructure and hedge funds, all of which saw declines.

Setter vice-president Michael Evans told Agri Investor the annual report does not include LACERA’s transactions and may not reflect recent demand for real asset-focused secondaries. Though farmland and agribusiness secondaries fund deals are still very small markets compared with generalist private equity and real estate funds, he said, recent interest in ag and infrastructure fund stakes will likely be reflected in the next iteration of the report.

A February 2022 estimate by Setter senior associate Geoffrey Bevans that there were about 40 farmland and agribusiness fund stakes available in the market at the time of the report is likely still approximately accurate, he said.

“Groups are often looking for infrastructure and real asset exposure because its looked at as being not as correlated with public markets and private equity in general. It’s looked at as, not necessarily a safe haven, but a way to diversify against what may be to come in both markets should there be a correction, or the correction that we’ve already been seeing,” Evans said.

“If they [LACERA] were trying to build in that hedge, then they would have been looking more towards a more tail-end, or already-funded portfolio because they get that visibility to buy into those assets and get them onto their books right away.”

Evans said more active market conditions in late 2021 could have supported a discount of as much as 40 percent on LACERA’s previous secondary fund stake purchase. Agricultural and timber funds generally price at a discount of 20 to 25 percent, he added.

“That’s not a function of the manager underperforming or being not well sought-after,” explained Evans. “Often, they will be 20 years or more and have a lower, but more defined, return profile. Instead of buyers looking for a 15 percent returns like they do in private equity, the returns are more like 7, 8 or 9 percent, for example. When the buyers are trying to back into their more private equity-style return, they do so through a discount because if they paid par for it, they wouldn’t be able to hit their own required returns.”

LACERA’s secondaries and co-investments currently make up 8 percent of its $68.8 billion overall portfolio and are targeted to grow toward a 21 percent share by 2027. According to a November presentation, increased deployment into the categories is designed in part to reduce fees and mitigate j-curves.