The Los Angeles County Employees Retirement Association has acquired stakes in two farmland funds now managed by Nuveen, through separate secondary transactions totaling $456 million.
According to materials released at its board of investment meeting this month (February), the $71.6 billion pension’s board approved in November a pair of secondary transactions involving real asset funds focusing on farmland in the US and other markets.
Specifically, the board approved a $191 million secondary purchase in TIAA-CREFF Global Agriculture and a $265 million secondary purchase in TIAA-CREFF Global Agriculture II. The transactions closed at the end of 2021 and the sellers’ identity was not disclosed.
LACERA and Nuveen representatives did not return messages seeking further detail.
“We are seeing more investors looking to get exposure to private agricultural assets,” said Geoffrey Bevans, senior associate at secondaries-focused investment bank Setter Capital. “Typically, we’ve seen that more often from public pension clients with longer time horizons, not unlike LACERA. That is typically where we are seeing most secondaries [buyers].”
Bevans told Agri Investor that rather than necessarily reflecting a negative judgement about a particular strategy or manager, an LP’s decision to sell fund stakes often comes after a change in internal strategy. He explained that after having characterized certain past investments as “non-core”, investors can often wait for ideal conditions for an exit from a fund.
“Most of the agribusiness and ag secondaries I would characterize as all being in that boat, where oftentimes bid/ask spreads remain a bit [longer than usual] because they simply don’t have to do it,” said Bevans. “It’s a nice to do, not a need to do.”
In August 2020, StepStone partner John Kettnich told Agri Investor there had been about 30 agricultural fund stakes on the secondaries market in 2019. Bevans estimated that although that number may have since grown to as many as 40 farmland and agribusiness fund stakes, ag-related secondaries remain a minor part of the overall market.
Toronto-headquartered Setter’s 2021 annual review recorded $380 million in agriculture and timber fund secondaries during fiscal year 2021, a 15 percent year-on-year increase in activity. Overall secondaries experienced a 132 percent increase during the same period, reaching a record $143.4 billion, according to the report.
LACERA categorizes agriculture and timber as part of a natural resources and commodities portfolio that accounts for 4.8 percent of total assets.
A letter from principal investment officer James Rice explained that in January 2021, LACERA’s Board of Investments approved a real assets structure review under which private infrastructure and natural resource investments will replace public equities in those categories and commodities futures over the next five years.
Since July, LACERA’s real asset program has included a secondaries fund managed by an unidentified GP with which the pension is already a real assets investor. According to a presentation included within February materials, ideal parameters for LACERA’s real asset secondaries investments include funds at least 70 percent deployed, committed or reserved, with a majority of assets located within developed markets and managed by the same team for at least three years.
Bevans highlighted that many of the large, sophisticated institutions already active in farmland and timber also maintain internal secondaries platforms or separately managed accounts. As these investors continue to move towards more direct investment approaches, he said, some portfolio restructuring could include additional ag and timber secondary sales.
“There’s really a pretty limited pool of buyers,” he said. “When you get up to that level, you are giving less away from an auction process because you only have so many buyers to rub together for competitive tension.”