How NAPCO gave QIC the scale it needed

What does QIC's investment in beef company NAPCO tell us about what kind of agribusiness superfunds are likely to invest in?

What does QIC’s purchase of 90 percent of the beef company tell us about superfund agri investment?

This week, Phillip Cummins, global private equity principal for Australia’s Queensland Investment Corporation (QIC), told me it took three and a half years to find and close a direct investment into primary agriculture.

It’s not clear how much QIC paid for 80 percent of the North Australian Pastoral Company (NAPCO), but it is thought to have been between A$255 million ($185.68 million; €164.74 million) and A$300 million in equity, although some estimates have been higher, since the company’s latest financial results valued it at A$519 million.

The time it took to find a primary agri deal that QIC found acceptable is revealing, though. The fund manager, managing both public and private money, is free to design its own investment strategy. In this case, representing Queensland’s Long Term Asset Advisory Board and the UK’s Pension Protection Fund, that strategy was direct and, despite the company’s land assets of 6 million hectares, mainly operational in focus.

With A$78 billion under management, QIC specifically avoided a strategy involving aggregating parcels of land to build up an agri investment from scratch, as superannuation fund NZ Super has with dairy farms in its home country. Instead, it was looking for a company in which it could build on scale and manage directly.

In NAPCO’s case, QIC would like to see the company capitalising on its breeding programme as an asset, add to the company’s presence along the supply chain and effectively, Cummins hoped, “de-commoditise” it over the next ten years.

There are a few reasons it can take a long time to find a large-scale opportunity like NAPCO. One Cummins mentioned is Australia’s fragmented beef industry, where even the top corporate owns no more than around 2 percent of Australia’s cattle herd. Large family-owned assets like NAPCO (still 20 percent owned by the Foster family) and S Kidman are not plentiful. Smaller and mid-size family operations are.

Cummins did not mention China, but it is likely to have been a factor. He simply said foreign investment has and will continue to have a role in food and agribusiness investment in Australia, a normal element of the market. S Kidman’s latest attempt to sell to Chinese-owned Dakang Australia might have been blocked by the Foreign Investment Review Board, but others have bought large-scale assets, such as the A$280 million acquisition of Van Dieman’s Land by Moon Lake, owned by billionaire Lu Xianfeng. When Chinese buyers, with an investment strategy looking at value chains, are outbidding local companies and investors – by tens of millions of dollars in some cases – getting access to these ready-aggregated assets is tough.

In this sense, NAPCO could offer a new model for large-scale Australian superannuation investment in agriculture, as Cummins hinted when he called the deal groundbreaking. He said QIC did not go direct to avoid fees (though he did say the 2-and-20 private equity model some fund managers imported to agri doesn’t fit the asset class’s return profile) but rather as part of a wider direct strategy which has seen operational investments in food processing and infrastructure.

Most Australian primary agri funds target high net worths, family offices, and remain in the tens, rather than hundreds of millions. There are funds, like Blue Sky, that incorporate supply chains into their primary strategies, mitigating commodity risk as QIC will seek to do with NAPCO. However, they are much smaller in scale and have not attracted significant investment from the superannuation industry.

QIC is also looking into large-scale deals in aquaculture, dairy and broad acre farming, Cummins told me, deals that fit the big cheques Australia’s superannuation industry can provide.

Given that fund managers can now achieve this kind of scale, superannuation funds could be less likely to look to smaller managers for access to agri. But as the NAPCO deal demonstrated, putting together a deal of this size isn’t easy, even if you have a super-sized cheque.

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