MainePERS commits $50m to Homestead fund

Chief investment officer Andrew Sawyer tells Agri Investor the $14bn pension is 'pretty close to being fully committed' after allocating more than $800m to ag and timber vehicles since 2014.

The Maine Public Employees Retirement System has approved a $50 million commitment to a farmland fund managed by Homestead Capital, a private investment firm headquartered in San Francisco.

MainePERS chief investment officer Andrew Sawyer told Agri Investor the commitment to Homestead Capital USA Farmland Fund III was approved at an October 11 board meeting.

The $14.4 billion pension was also an investor in Homestead’s previous fund, Homestead Capital Farmland II, to which it made a $50 million commitment before that vehicle closed on $400 million in late 2016.

Those commitments contribute to the more than $800 million MainePERS has allocated to agriculture and timber funds since 2014.

Sawyer said the addition of agriculture and timber investments was part of general diversification push started in 2007. After committing more than $300 million across five vehicles in 2016 alone – including $50 million to Tillridge Global Agribusiness Fund II and $150 million to Twin Creeks Timber – Sawyer added that pacing and the availability of deal opportunities were the only reasons for a pause in new ag and timber commitments in 2017.

“We are pretty close to being fully committed in our alternative asset classes and do not [expect] material changes in our allocation and manager line up,” Sawyer wrote.

So far this year, MainePERS’ agriculture investments have been split evenly between agribusiness and farmland funds. In addition to the farmland commitment to Homestead approved this month, in June, MainePERS committed $45 million to the latest iteration of Paine Schwartz Partners’ flagship agribusiness fund, which is currently seeking $1.2 billion.

“The mix [between farmland and agribusiness funds] is in line with our policy expectations,” wrote Sawyer. “We believe the agribusinesses have more equity beta and carry them in our PE bucket.”

A ‘private equity’ approach to farmland

Last month, Homestead secured a $25 million commitment to Homestead Capital USA Farmland Fund III from the $8.3 billion Rhode Island State Investment Commission.

According to documents presented to the Commission, Farmland Fund III is a 15-year fund with two possible one-year extensions that is targeting between $600 million and $700 million. The fund has a 1.5 percent management fee and a 15 percent carry over a 6 percent preferred return, with payments delivered on a whole-fund, European-style waterfall, according to the documents.

“The strategy seeks to acquire undervalued farms and apply a well-defined set of initiatives to improve the value of the properties post-acquisition,” wrote Rhode Island’s consultant Cliffwater in a memo recommending its commitment to the fund.

According to Cliffwater’s memo, the fund will rely on exclusive farm managers focused on the Mountain West, Pacific, Midwest and Delta regions. The mix of independent and contracted managers will be tasked to locate farmland properties with “distinct value-add opportunities that will bring the farm to top producing status.”

In a presentation to Rhode Island, Homestead acknowledged that while some risks, like weather and commodity price risk, are inevitable, the firm is equipped to use lease structures, crop insurance and other tools to reduce income volatility.

“We can arrive more efficiently at our return targets by blending higher risk, higher-returning farms (ie, greenfield development permanent crop farms) with lower risk, lower-returning farms (ie, Midwest cash rent farm),” Homestead said.

Homestead, which declined to comment further for this article, described its approach in the Rhode Island presentation as being a “private-equity approach to value creation,” that could include investments in improvements like leveling uneven land, improving irrigation and draining systems and adding precision agriculture technology, among others.