PA Capital aims to boost ag within second real assets fund

Agriculture will likely account for up to 10 percent of investments from a PA Capital real assets fund that closed on $242 million earlier this year, according to the executive leading the effort.

“Anything can change over the next 18-24 months, but from what I can see right now, it [agriculture] is probably going to be in the 5 to 10 percent range,” managing director Zac McCarroll – who leads the real assets practice at the lower mid-market-focused unit of insurance company New York Life – told Agri Investor.

Plans call for up to 40 percent of the vehicle’s investments be devoted to upstream energy, about 20 percent of its capital to be focused on infrastructure and the remainder divided between ag, mining and other adjacent sectors, he said.

Soon after closing the first iteration of the PA Real Assets Fund on $205 million in mid-2017, McCarroll told Agri Investor he expected agriculture would account for about 20 percent of the fund’s investments.

In fact, he said last week, a combination of the vehicle’s 15 percent net return target and the firm’s decision to focus on agtech growth equity dictated that just over 5 percent of Fund I investments ended up being devoted to ag. Fund II has the same return target, he said.

“There are large portions of the agriculture industry today that are structured to generate yield and not a ton of capital appreciation. They simply didn’t meet the bar in this case,” said Carroll, who explained that higher potential return led the firm to categorize agtech within real assets.

“We would have probably liked to get more exposure, but the evolution of fund managers within agtech is still in its infancy.”

McCarroll declined to identify any specific firms PA Capital has invested with from Fund I. The agricultural investments that were carried out from the vehicle, he said, were largely focused on permanent crops and agtech growth equity, but also included exposure to organic chicken processing and water.

PA Real Assets Fund II closed in April after securing commitments from corporate pensions, foundations, insurance companies and family offices. More than 70 percent of commitments came from existing PA Capital LPs. About 15 percent of its capital was raised from investors outside the US, including from Israel, Germany and Canada, according to McCarroll.

McCarroll launched PA Capital’s real assets division in 2014, joining the firm after seven years as a director at the University of Texas Investment Management Company.

LPs in the Fund II, he said, are focused on its strategy having exposure to a diversified portfolio across real asset sub-sectors and appreciate that agriculture is among them, McCarroll said.

While there is a great deal of education still needed before institutional investment becomes more widespread, he added, the strengthening focus on the role agriculture can play in environmental, social and governance-focused investing has provided another reason for LPs to consider the asset class.

McCarroll said Fund II will focus on commitments to small specialist funds for about half of its investments, with the remainder likely comprised of co-investments and secondary transactions.

Though agricultural private equity is not yet deep enough to support a high volume of secondary transactions, he said, there is a possibility of agriculture-focused co-investments from Fund II.

“For some of our partners that do have an active co-investment program, if we were to find an attractive ag-related deal that needed excess capital, I definitely think that they would be willing to at least do the work and the diligence to consider an out-sized investment,” he said.

Headquartered in Richmond, Virginia, PA Capital manages more than $5 billion in assets and operated as “Private Advisors” before re-branding earlier this year.