Paine Schwartz targets $1.5bn for Fund VI

The New York-headquartered firm has secured at least two commitments for a follow-up to the $1.45bn Fund V, to focus on an agribusiness sector it says has outpaced all others since 2006.

Paine Schwartz Partners is targeting $1.5 billion for the sixth iteration of its flagship agribusiness fund, according to materials presented to the Rhode Island State Investment Commission.

The Commission approved a commitment of $30 million to Paine Schwartz Food Chain Fund VI by the Employees Retirement System of Rhode Island at its meeting on June 22.

According to materials presented by New York-headquartered Paine Schwartz at the meeting, the vehicle will seek a preferred return of 8 percent over an investment period lasting five years from final close. The 10-year fund’s terms include a GP commitment of 2 percent, 20 percent carried interest and management fees of 2 percent of commitments during commitment period and 2 percent of net invested capital thereafter.

In a memo to the office of the state’s general treasurer, Rhode Island staff noted that Paine Schwartz benefits from an investment environment surrounding sustainable food and agribusiness that is generally less competitive than other sectors.

“Despite food and agribusiness representing 8.5 percent of global GDP, there are few private equity groups focused on these sectors, with the sector representing only 2.8 percent of buyout and 4.4 percent of growth equity activity in 2021,” staff wrote.

According to Paine Schwartz, Fund VI will make investments of between $50 million and $500 million, primarily focused on companies supporting productivity, sustainability and health and wellness in North America, Western Europe and Australia/New Zealand. Subsectors of particular interest for the fund include controlled environment ag, software and business services, value-add processing and ingredients, among others, which have done especially well since 2006.

A memo from Rhode Island investment consultants Cliffwater clarifies that Paine Schwartz intends Fund VI to support 10 to 12 investments in a strategy calling for up to 20 percent growth equity investments.

Paine Schwartz’s Food Chain Fund V closed on $1.45 billion in 2019, after exceeding an initial target of $1.2 billion. Founding partner and chief executive Kevin Schwartz told Agri Investor soon after that close that the fundraising effort for Fund V saw the firm expand its core LP base from a traditional focus on US and European pensions, endowments, family offices and sovereign wealth funds to include material commitments from institutions in Canada, Asia and the Middle East.

Among Paine Schwartz’s investments from the vehicle was a 50 percent stake in Dutch animal genetics and technology company Hendrix Genetics and a preferred equity investment of $150 million into Nasdaq-listed produce treatment provider AgroFresh.

Rhode Island staff noted that Paine Schwartz’s specialty in upstream companies providing “increasingly mission-critical inputs” is a key component of its strategy to mitigate risks associated with exposure to farmland and production-related assets.

“Prior to Fund V, Paine Schwartz made a few investments in production-orientated assets that suffered from cyclicality and commodity exposure, affecting performance,” staff wrote. “In Fund V, the firm significantly raised its bar for these types of assets and going forward it will generally avoid farmland or other production-related investments to limit direct commodity exposure.”

The Rhode Island State Investment Commission committed $15 million to a co-investment vehicle managed by Paine Schwartz in 2021, which will invest alongside Fund VI on a no-fee, no-carry basis, according to the Cliffwater memo.

The El Paso Police and Fire Pension Plan also approved a commitment of $15 million to Food Chain Fund VI on June 22.

Paine Schwartz and Rhode Island declined to comment. El Paso did not reply to messages seeking further detail.

According to its Rhode Island presentation, Paine Schwartz has achieved a cumulative 2x net MOIC and 35 percent IRR through $3.8 billion in equity and $1.3 billion of co-investment capital deployed in 73 investments through 26 platforms. The New York-headquartered firm had $3.2 billion of assets under management as of December 31, according to a March filing.