The ‘Canadian Model’ of institutional investment has attracted widespread praise and emulation in recent decades for its ability to lower fees and elevate returns by bringing investment capability in-house.
Previously utilized in investments stretching from real estate to dentistry, recent events make clear that agriculture – with its unique mix of potent environmental, social and governance risks – is likely to be a key test for the Canadian Model in decades to come.
Though Canadian institutions’ involvement in farmland markets is not new, a rapid series of high-profile acquisitions in recent weeks highlights that cutting-edge institutions north of the border will continue playing a key role in the evolution of the agricultural asset class.
Earlier this month, Agri Investor reported that the C$193.9 billion ($145.48 billion; €127.94 billion) Ontario Teachers’ Pension Plan had purchased Broetje Orchards, a family-owned, vertically-integrated apple producer in Washington State for an undisclosed amount.
In late December, the C$158.9 billion PSP Investments paid $262 million for a 41,000-acre farmland property in Hawaii that it plans to develop through a joint venture with Trinitas Partners. PSP then acquired a majority stake in New South Wales-headquartered cropping enterprise BFB from Proterra Investment Partners, adding to a rapidly expanding collection of investments in Australia that already included partnerships focused on animal protein, row crops, fresh produce and tree nuts.
A source familiar with PSP’s strategy who agrees that a platform approach is well-suited to agriculture told Agri Investor that the firm’s plans for a number of different platforms across regions and sectors could prove challenging to carry out because such platforms are “very, very high maintenance.”
“[PSP wants] to do it direct, rather than going through managers, which means that they have to do all of the heavy lifting, but it also means that your risk profile is that much higher,” the source said. “The risk of one of those platforms going wrong is much more difficult to sort out.”
PSP’s managing director and head of natural resources, Marc Drouin, told Agri Investor that the unit is not targeting a specific number of platforms, as it works to grow natural resources towards 5 percent of the pension’s overall AUM (the unit currently manages $4.8 billion, including legacy energy investments).
Drouin said PSP will be “thoughtful” about adding new partnerships and on the lookout for opportunities to consolidate the number of platforms it manages by providing further scale to the portfolio’s standouts.
He acknowledged that any effort to achieve scale in agriculture will encounter a unique mix of risks, adding that direct investors like PSP have to be especially mindful of the sectors’ mix of particularly visible risks and careful about who they partner with.
“We are able to delegate the day-to-day operations to our partners because we only partner with best-in-class local operators,” said Drouin. “We also ensure, from the outset, that our operators are like-minded both from an investment horizon and policy and procedure perspective, such as health and safety and other ESG aspects, and we work with them to continuously pursue best practices and raise the bar.”
Of course, it is in that process of integration where the question of whether Canadian institutions like PSP can provide a model relevant to the broader market will ultimately be answered.
The characteristics that have distinguished Canadian institutions as investors over the past 20 years echo many of those often described as key for success in agricultural investments: a genuinely long-term investment horizon; a high degree of diversification; pursuit of scale through a focus on personnel; and collaboration across diverse stakeholder networks.
If Canadian institutions can efficiently and credibly inculcate the balance of caution and cunning that has marked their approach to other sectors, they could help provide a model for an agricultural asset class increasingly focused on expansion into new markets and sub-sectors.
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