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MassPRIM taps Prudential for $500m farmland strategy

Prudential Agricultural Investments will target unlevered returns of between 6% and 10% through a focus on permanent crops.

The Massachusetts Pension Reserves Investment Management Board’s investment committee, has approved a commitment of up to $500 million to Prudential Agricultural Investments.

According to materials presented at the $79.1 billion pension’s meeting on February 26, MassPRIM staff and its investment committee voted unanimously to add PAI as a manager in its real assets portfolio.

MassPRIM’s real assets are housed with a portfolio completion strategies allocation that made up 9.2 percent of the total portfolio as of December 31 and has a target allocation of 11 percent.

PAI will seek to acquire properties capable of producing unlevered returns of between 6 percent and 10 percent, with 2 percent capital appreciation over the life of the investment. In addition, PAI plans call for a focus on climate, water availability and soil risk when seeking properties producing crops with identifiable domestic or export demand.

The firm manages 129,089 acres planted in 15 mostly permanent crops from offices spread throughout five agricultural regions of the US, according to the meeting materials.

“PAI typically employs a direct operating strategy whereby the production, price and operating cost are borne by the investor,” noted MassPrim meeting papers. “The firm believes that by applying its management capabilities, it can access higher returns and better manage the risk of permanent and irreversible damage from tenant use.”

PAI is a farmland-focused unit within Prudential Group Investment Management that had served a total of nine institutional accounts since its founding in 1989 as of March 2019, according to its website.

PAI works together with Capital Agricultural Property Services, an in-house property management unit Prudential acquired from Northern Bank Trust of Chicago in 1986 that provides property management services and advises on acquisitions.

“PAI’s key objective is to construct high-quality investment portfolios of diverse agricultural properties generating long-term unlevered returns exceeding the NCREIF Farmland index,” said a summary of its investment strategy in the meeting materials.

In an overview published last year, PGIM highlighted that nut crops such as those within the PAI portfolio are mechanically harvested and that the US had in recent years seen a surge in funding for farm robotics, mechanization and equipment. PGIM looked to further bolster the case that now is a good time for institutions to enter farmland by highlighting that the average age of US farmers in 58 with the majority working part-time.

“An aging farmer generation, fractional family ownership structure and technological advances requiring sizable capital investment will naturally transition farmland holdings from individuals to institutions,” wrote PGIM staff.

PAI declined to comment.