Milltrust International, an emerging markets investment house, will begin marketing an agri-focused private equity fund targeting $150 million in the fourth quarter of the year.
It has started pre-marketing discussions with high net worth individuals in Asia, pension funds in Europe and US endowments and aims to hold a first close by the end of the year on between $80 million and $100 million.
The fund, named Emerging Markets Land Opportunities, will be one of very few that offers a diversified investment strategy across geographies and agri sectors, although it will target investment opportunities in the Southern Hemisphere only.
“The lack of subsidy inference across most of the Southern Hemisphere is very appealing especially when compared with the US and Europe where the subsidy culture is really entrenched,” said Griff Williams, investment director.
The region’s climate also appealed, according to Vishaal Shah, partner head of private equity research, as Milltrust identified weather as the biggest risk factor in agri investing.
The fund will target a range of projects, predominantly own-and-operate investments in primary production, across cropping, livestock and dairy, but it will also consider supply chain investments in areas such as logistics.
“However these could be part and parcel of any land investment, such as a grain silo, so might not be separate investments,” he said.
Milltrust plans to invest 40 percent of the fund’s capital into Australia with the remainder across the rest of the Southern Hemisphere, but predominantly in Latin America. Each investment will be made alongside a local partner; Milltrust has already identified various partners from the agriculture industry.
The fund is targeting a net internal rate of return, after fees, of between 12 percent and 15 percent. Of this between 6 percent and 8 percent could be paid out in annual cash flow-linked dividends. This will differentiate Milltrust from other agri investment offerings, according to Shah.
“I think it was a mistake of the first wave of agri investment managers to rely on the appreciation of land values to provide investors with the bulk of their returns,” said Shah. “Our model puts more emphasis on operating profits and efficiency, and it is quite conservative about land appreciation. This suits many investors that need to pay liabilities on an annual basis.”
The 10-year fund has a three-year deployment period and will charge a 1 percent management fee and a 10 percent performance fee. The fund’s managers also plan to offer some co-investments.
The firm has been working on developing its investment process since the start of the year, taking into account top-down risks such as politics and bottom-up risks such as local industry players. An agricultural offering has been in the pipeline since 2012 when Milltrust identified real assets as an important investment area.
Shah joined Milltrust in June 2011, before which he worked as a hedge fund portfolio manager for Close Brothers Group. He was also lead analyst for a family office portfolio.
Williams joined the firm at the start of the this year after joining from Itau Asset Management where he was head of Europe and interim chief executive, and also in charge of institutional sales across Europe. Williams is a New Zealand national and still has a dairy farming operation there.
Other key executives include Pyers Griffith, managing partner for Latin America, based in Argentina; the firm’s Singapore-based founder and chief executive, Simon Hopkins; and Mark Ebert, the firm’s Switzerland-based chairman.
Three junior research analysts are also working on the fund.