Paine Schwartz drives home its advantage to the tune of $1.7bn

The firm has cashed in on its long history and track record to raise the third-largest dedicated food and ag fund.

When Paine Schwartz Partners closes a fund in its Food Chain series, it’s usually an occasion worthy of fireworks due to the size of the fund close.

There were no exceptions to the rule last week when the New York-based firm closed Food Chain VI on $1.7 billion, exceeding its $1.5 billion target.

Besides becoming Paine Schwartz’s largest vehicle to date, it also became the third-largest dedicated food and agriculture private equity fund ever, according to Agri Investor data.

First and second place still belong to TIAA’s $3 billion Global Agriculture Fund II and the $2 billion Global Agriculture Fund I.

Also worth noting is the speed at which Paine Schwartz has completed the fundraise, having held a $455 million first close in August 2022.

So why were LPs so keen to hop on board?

For a start, the strategy’s history and the firm’s track record, along with the vehicle’s capacity to accommodate big tickets from multiple institutional LPs, allowed it to fish in a food and ag capital pool where only a handful of other roughly $1 billion funds exist.

Food Chain VI’s 8 percent hurdle rate will no doubt have been attractive to investors as well. It is too soon to scrutinize performance data on Paine Schwartz’s Fund V, which closed on $1.4 billion in 2019, but Fund IV – which closed on $893 million in 2014 – has delivered a 10 percent IRR to date.

It is also a pleasant reality – for those who have it – that with performance history comes trust, because that means repeat investors.

The Minnesota State Board of Investment, which has been investing in the firm’s strategies since 1998, committed $150 million to the vehicle. Other repeat investors include the Teacher Retirement System of Texas and the Rhode Island State Treasury, among other returning sovereign wealth funds, endowments, foundations and family offices.

Food Chain VI will continue to hone the firm’s strategy of investing in food chain businesses that fall under two broad trends: productivity and sustainability, and health and wellness.

To this end, the firm has already deployed 40 percent of the $1.7 billion fund into businesses such as Elemental Enzymes, AgroFresh Solutions and Monterey Mushrooms. It has also partnered with EQT Future and AM Fresh to merge its portfolio company Special New Fruit Licensing with International Fruit Genetics to create Bloom Fresh International.

“We’ve observed there is significantly more interest from institutional capital broadly and impact capital specifically around genetics and the breeding and licensing segment of the food and ag value chain,” chief executive and managing partner Kevin Schwartz told Agri Investor about the Bloom Fresh International deal.

“There are a number of other large sources of institutional capital that are canvassing the landscape for these kinds of opportunities,” added the CEO.

Paine Schwartz is also the leading member of a consortium that includes US berries specialist Driscoll’s and Canadian pension BCI, which has had a A$1.5 billion ($966 million; €908 million) offer accepted for listed Australian agribusiness Costa Group.

The firm previously invested in Costa Group when the former was known as Paine & Partners, acquiring a 50 percent stake in July 2011 through its third fund. After further investment in the company, Paine & Partners floated Costa on the ASX in July 2015.

Perhaps the most telling reason why Paine Schwartz was able to take its impressive haul in such short order is the same reason why its name does not look out of place among the blue chips such as those coming along for another run with Costa Group.

When it comes to food and ag private investment, Paine Schwartz is as blue chip as it gets. That’s a useful advantage when fundraising in a dramatically contracted market.