Paine Schwartz takes more than $600m towards $1.5bn Fund VI target

McKinsey intends to be among LPs in the latest iteration of the firm’s flagship agribusiness fund, according to materials provided to the State of Connecticut Investment Advisory Council.

Paine Schwartz Partners has raised at least $615 million toward the $1.5 billion target for its latest agribusiness fund, according to a presentation to the Connecticut Investment Advisory Council.

Paine Schwartz Food Chain Fund VI has a hard-cap of $2 billion and aimed to reach a first close in the third quarter, according to the materials. Paine Schwartz declined to comment.

The vehicle was discussed at a September 14 meeting of Connecticut’s IAC, where chief investment officer Ted Wright and consultants Meketa both recommended a commitment of $150 million.

A Connecticut representative told Agri Investor via email that the $150 million commitment was approved by the IAC and is not included in the estimate within Wright’s report that Fund VI had raised about $465 million as of late August 2022.

Among the factors influencing the decision to invest, according to the CIO’s report, was potential for co-investments, which it reported Paine estimates will be $0.50 for every $1 in fund investments.

In June, the Rhode Island State Investment Commission approved a $30 million commitment to Fund VI and the El Paso Firemen & Policemen’s Pension Fund committed $15 million to the vehicle. The Connecticut CIO noted that consultants McKinsey, with which Paine Schwartz has a research partnership, intends to be a limited partner within Fund VI.

“For Fund VI, McKinsey will become more aligned with PSP and Fund VI by becoming a contributing limited partner and will have capital at risk, whereas in the past it only participated in carry,” Meketa added in its report.

Both Meketa and the CIO highlighted Paine Schwartz’s 2021 addition of former McKinsey executive Lutz Goedde as partner, among the factors mitigating risks associated with the reduced role of firm founder Dexter Paine and departure of four senior-level executives since 2020. Goedde is described as having 25 years’ agribusiness experience including as global leader of McKinsey’s Agribusiness and Food Practice, as well as previous roles with Bayer Crop Science and the Bill & Melinda Gates Foundation.

Paine Schwartz’s partnership with McKinsey is described as providing industry insights and deal sourcing contacts organized around more than 100 “deep-dive” research efforts and at least two comprehensive industry analyses.

Current Paine Schwartz executives with McKinsey experience include Will Kaplan, a principal who served as a McKinsey engagement manager before joining Paine Schwartz in 2020 and Food Chain Advisory Board member Sunil Sanghvi, who continues to serve as leader of McKinsey’s Center for Agricultural Transformation and Food Systems and previously led its Global Agriculture Practice.

McKinsey and MIO Partners, an investment advisory affiliated with the consultants, did not address the content of messages from Agri Investor seeking further detail on the firm’s investment into Paine Schwarz’s Fund VI in time for this report.

Fund VI’s strategy is described as seeking gross IRRs of up to 25 percent through an average of three investments of between $50 million and $500 million per annum into crop and animal productivity, controlled environment ag and other agribusiness markets. Subsectors of specific focus include software, ingredients, value-added processing and food and beverage products.

Meketa noted that among the risks facing the vehicle is that only 64 percent of capital from the $1.45 billion Fund V has been invested thus far and just 2 percent of capital has been returned.

“Although Fund V is a 2019 vintage fund, it initially had a slower deployment pace due to covid-19. The portfolio is showing early signs of success and all investments are at or above cost,” the consultant wrote. “Also, the portfolio company SNFL recently announced a partial realization that will return approximately its invested capital with further upside potential.”

Paine Schwartz’s current pipeline includes more than 10 deals comprising at least $2.4 billion in equity needs, of which four are at advanced stages, according to Meketa. Among future investments described as warehoused for after a first close on Fund VI is a $150 million improvement to a North American mushroom producer with a biogenetics platform.