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‘Lack of GP experience is hindering institutional interest in ag’

Institutional investors would like to deploy more capital into agriculture but a lack of experience among GPs is giving LPs pause for thought, the Agri Investor Chicago Forum 2019 heard.

The flow of institutional capital into agricultural assets is being stymied by a lack of experience with the asset class at the GP level, according to a panelist at the Agri Investor Chicago Forum 2019.

Speaking on a panel looking at agriculture’s place in the LP/GP nexus that was held under Chatham House Rule, the participant said: “LPs don’t think there are enough people out there with the right track record.

“They don’t think there is enough of a pool of people [through whom] they can deploy all the capital that they would otherwise like to deploy within the space, and that’s just in the US.

“If you take it outside of the US, lack of experience and the doubt that creates is probably one of the biggest issues hindering institutional interest outside of North America.”

Another panelist added that more generalist firms seeking to take advantage of this knowledge gap could be caught out, because ag requires specific expertise.

“Everybody has got something that makes them different, but those that say we do agriculture because we do everything, I don’t think that fits very well in this sector,” said the panelist.

One of the knock-on effects this has had and is still apparent in some places is a heavy-handed focus on process when GPs become involved in a farm operation, the panelist added. “The last thing you want to do is change the culture so much that it all just becomes about processes. One of the areas private equity has traditionally struggled with agriculture is coming in and trying to run it like a machine and forgetting that you’ve got to be thinking more longer term.”

Two of the largest ag-focused funds recorded in the second half of 2019 to date have come from established players in the ag space.

Nuveen launched its first open-ended farmland fund at the end of September, targeting $2.4 billion for a vehicle that will make farmland acquisitions averaging $20 million across the US, Australia, New Zealand, Brazil, Poland, Romania and Chile.

Roughly around the same time, Paine Schwartz Partners closed its fifth fund at $1.45 billion, with two-thirds of the capital expected to be deployed in US-headquartered companies with global operations.