LPs ‘looking past agriculture for downturn strategies’

Fraser van Rensburg, Asante Capital Group managing partner, tells Agri Investor that LPs anticipating a correction in public markets are more likely to focus on litigation, life insurance or royalties, according to the group's latest research.

Agriculture is not among the strategies LPs are looking to employ ahead of an expected correction in the global equity market, according to an Asante Capital Group managing partner.

Last week, the placement and advisory group published a survey of 112 senior global investment professionals that showed a majority expect a significant market downturn within the next 18 months.

“Whilst the timing is unclear, the general consensus of an imminent downturn has resulted in a continuing shift towards private debt and uncorrelated, downside-protected strategies,” the report’s authors wrote. “Yet, interestingly, whilst most respondents are looking for downside-protected strategies at this stage in the cycle, when asked if they have seen an increase in the number of uncorrelated strategies in the market in 2017, they overwhelmingly said they had not.”

Although agriculture-focused managers and investors often tout the sector’s non-correlation as a key to its appeal, managing partner Fraser van Rensburg told Agri Investor that agriculture does not fall into Asante’s definition of the term. “Non-correlated strategies for us are life settlements funds, litigation funds and royalties funds and others that are genuinely uncorrelated from any kind of market or commodity cycle,” van Rensburg said.

“Agriculture is somewhat independent of public markets, but not totally independent – because if public markets tanked, that would adversely affect the commodity cycle and that would affect the prices of agricultural land,” he explained.

Van Rensburg said that, while timber is less correlated to the larger commodity cycles than agriculture, LP interest remains low. “It took off some 10 years ago, with a few managers raising healthy-sized funds and then has been pretty dead for the past 10 years,” he said.

“Agribusiness is a completely different trend. Agriculture, and agribusiness, is definitely on the up.” The past year saw no change in the attraction of agriculture and timber relative to other real asset strategies, according to Asante’s survey, which highlighted the correlation of the number of funds in the market and sector preferences expressed by survey repondents.

“Agriculture is such a big sector, it is way underserved in terms of the number of funds or GPs out there,” van Rensburg said, echoing an observation made in Asante’s report. “In other sectors like healthcare and technology and energy and so forth, the private equity penetration is far more significant than agriculture.”

Elsewhere in the survey, Asante highlighted a surge of LP interest in co-investment opportunities outside existing GP relationships and a finding that 54 percent of respondents will consider investing alongside a fundless sponsor. Van Rensburg said, that while his firm does know of deal-by-deal agribusiness managers active in farming, horticulture and aquaculture, in general agriculture is not among the sectors driving LPs’ growing interest in backing such managers.