New Jersey’s Division of Investment is committing $100 million to a farmland investment vehicle being raised by San Francisco-headquartered Homestead Capital.
The commitment to Homestead Capital USA Farmland Fund III, the $72.1 billion pension’s first farmland investment, was motivated by a desire to diversify its exposure to energy commodity price risk while remaining within the real asset portfolio’s mandate of conservative investments with the ability to generate attractive cash yields, according to a memo from acting director Corey Amon.
It was approved in late January by NJDOI’s State Investment Council.
Amon highlighted the downside protection provided by land values, the relative ease of converting land to other agricultural or real estate purposes, crop insurance and “lease structures that transfer the burden of productive yield and crop prices to the farm operator.”
Homestead’s strategy for the vehicle, according to the memo, will focus on row and permanent crop farmland properties in the Mountain West, Pacific, Midwest and Delta regions of the US where the firm can add value through capital improvements, crop selection, the application of technology or participation in government programs.
Amon’s memo also highlighted Homestead’s formal ESG policy, which was described as focused on core themes of labor, sustainability and the environment, with the third containing a particular emphasis on water.
“Homestead’s focus within labor is centered around partnering with top operators that pay fair wages, actively monitor their working conditions, properly train workers and supervisors, and communicate with workers to ensure they understand their rights,” Amon wrote in the memo.
As of the end of June, Homestead’s first fund, which closed on $173 million in mid-2015, had produced a net IRR of 0.2 percent, according to data provided to New Jersey by its real assets consultant TorreyCove Capital Partners.
Homestead’s second fund closed on $400 million in late 2016 and had produced a net IRR of -2 percent as of the end of June after closing in 2016, according to the TorreyCove data.
Homestead Capital USA Farmland Fund III has a $600 million target with a $700 million hard-cap, a 15 percent carry and a 6 percent hurdle rate, according to the memo. Amon also wrote that the vehicle carries a management fee of 1.5 percent on committed capital during the investment period and 1.5 percent on invested and reserved capital thereafter.
Previous commitments to the vehicle have included $25 million from the $8.3 billion Rhode Island State Investment Commission and $50 million from the $14 billion Maine Public Employees Retirement System.
Homestead declined to comment.