Describe your strategy clearly and don’t mention fees within the first five minutes. That’s what institutional investors told managers at the Agri Investor Forum in Chicago last week.
The panel was moderated by Rob Leclercq, founder of Access Alpha, the Chicago-based placement agency, and included Mark Canavan, senior portfolio manager of real assets at New Mexico Educational Retirement Board; Spencer Swayze, senior associate in the natural resources investments department of UTIMCO; and Biff Ourso, senior director and portfolio manager, natural resources at TIAA-CREF.
Canavan: “I don’t want to sound rude but I hate the private equity structure. I don’t see why I have to be holding something for seven to 10 years that theoretically I want to be holding for the next 20 to 30 years.”
Swayze: “We need to make sure there is strong incentive alignment with the team. It’s a close and long term relationship so we need to work on the same side of the table.”
On pitches and fees:
Canavan: “They better not say 2-and-20 in the first five minutes of the conversation. Don’t come to me with a pure private equity model and fees and expect me not to be resistant. But if you are talking vertical integration, I am much more likely to be amenable [to those fees].”
Later on, he added: “Unless you are a very small fund manager, charging 2 percent to cover your costs is unreasonable.”
Swayze: “I speak to a lot of people that really understand the broad macro theme but when I start drilling down I realise that some managers are unable to really describe how they will express their thesis or the theme in the portfolio. The ability to clearly describe how their specific strategy addresses their theme is very helpful to me.”
On what they look for in agri investment managers:
Canavan: “I don’t want to dissuade anyone from investing in a first-time fund, as over a third of what I do is in first-time funds. But as a GP, you need to know your market and who you are marketing to as some investors will simply never invest in first-time funds.”
Swayze: “I focus on ensuring there is enough sector expertise within the management team and I reach out to contacts from the sector to really understand the team’s domain expertise.”
Canavan: “I prefer guys that have had hands dirty in a farm as opposed to a financial engineer.”
Ourso: “Education is very important and it’s never a case of just one conversation. Managers need to ensure that they really address concerns and questions along the way. Balance is also very important so they should talk about the downside as much as the upside. They need to be very transparent about what they know and what they don’t know.”
What do you look for in a manager? Let us know in the comments below.