According to a memo from chief investment officer Molly Murphy contained within materials from the meeting, which Agri Investor has seen, the $16.7 billion pension committed $40 million to the AAF in 2010 and its capital was fully drawn by the fourth quarter of 2012.
As of the end of March, OCERS’ investment in the AAF was valued at $64.1 million, which constitutes a 6.4 percent net internal rate of return, according to the memo.
“AFF has underperformed the NCREIF Farmland Index since inception because the NCREIF Farmland Index includes both operated and leased farms,” Murphy said in the memo. “Due to being a lower-risk strategy, UBS uses a Core Farmland Index that only includes leased properties from the NCREIF Farmland Index weighted towards AFF’s allocation policy of 80 percent annual crops and 20 percent permanent crops.”
The decision to put in a full redemption request was made by OCERS staff together with portfolio advisors Aksia TorreyCove and is effective September 30. Plans call for UBS to pay redemptions on a pro rata basis as cash becomes available.
“Since OCERS is a significant investor in the fund ($64.1 million out of an $875.2 million net asset value for AFF) and AFF has a net redemption queue, OCERS Investment Team expects a full redemption to take several quarters,” Murphy wrote.
In the memo, Murphy presented the redemption as related to the OCERS investment committee’s April decision to lower its real assets allocation from 8 percent to 5 percent. As part of the change, Murphy wrote, targets within real assets have been defined for energy and infrastructure and the target allocation for agriculture and timber has been changed to between zero and 5 percent.
Launched as an open-ended fund in 2006, the AAF pursues a strategy based on leasing row, vegetable and permanent crop properties and does not assume operator risk. Its portfolio was comprised of 70 percent annual commodity crops, 18 percent annual vegetable crops and 12 percent permanent crops as of January 2018, according to a presentation to the $2.97 billion Sonoma County Employees Retirement Association.
UBS and OCERS declined to comment.
Jim McCandless, a managing director with UBS’ Farmland Investor unit, told Agri Investor last year that the firm carries out appraisals on all of its properties on a quarterly basis, in part because it is difficult to predict when LPs will be interested in redeeming investments. Periodic opportunities to do so, he said, are among the key benefits of the open-ended structure.
“People that are in it tell us that mostly they do like that option – although they do not expect to need liquidity,” he said.