Switzerland-based responsAbility has secured an “anchor” investment of an undisclosed size for its agriculture debt fund from Kempen Capital Management, a Dutch asset manager.
Domiciled in Luxembourg with an open-ended structure, the responsAbility SICAV Agriculture Fund aims to raise between $250 million and $300 million over the next three years to support a strategy generating “competitive market-based returns” alongside developmental impact.
The fund will target annual returns of between 3 and 5 percent and responsAbility’s head of global sales, Phillip Rauh, told Agri Investor that the fundraising effort will concentrate on European institutions with a focus on agriculture and/or developing world investments.
“We’re seeing interest in certain regions where institutions are a little further ahead when it comes to having impact/sustainable investing on their plate, such as the Nordics and Holland,” Rauh said. “We’re not the only ones doing this, but the reality is that there are few opportunities to invest into institutional-grade funds that do this type of activity as broadly as we do it in terms of geography and with the type of track record that we have.”
Spanning the spectrum
Gaelle Bonnieux, responsAbility’s head of agriculture debt investments, told Agri Investor the fund will be diversified across the agricultural value chains in Latin America, Africa and Asia, with a focus on processing and value addition by midstream businesses.
Bonnieux said loans from the fund are likely to carry interest rates of around 8.5 percent with up to three-quarters offered to support investments in short-term assets and the remainder dedicated to financing larger capex investments. Terms on loans from the vehicle will vary between one and five years, according to Bonnieux, who said most will be of about three years.
She added that rising interest in impact investing over the past five years has increased competition for the type of developing-world agricultural investments that offer the potential for both social impact and competitive financial returns. She noted that competition for such deals is mostly divided by size, with firms generally focused on securing suitable investments either above or below $1 million, while responsAbility offers loans ranging from $500,000 to $20 million.
“The main players in private equity, and also large players, are going into equity and private equity in sustainable agriculture. On the private debt side, it goes slower and it’s mostly blended finance from public sources, but not so much private investment,” said Bonnieux.
‘Bigger pockets of money’
She said that to measure the social impact of its investments, responsAbility has worked to define criteria measuring its key concerns of resilience, gender and rural development. Specific metrics being tracked, according to Bonnieux, include farmers’ income in volume and value, overall number of employees and farmers, number of female employees and farmers as well as number of hectares cultivated using sustainable practices.
Rauh said that while investors are increasingly interested in seeing evidence substantiating that their capital is having a positive social impact, responsAbility’s focus on market-based returns distinguishes the firm’s work from philanthropy.
“That, in our opinion, is hugely important because you are able to mobilize bigger pockets of money. If you think of Kempen, they work with institutional Dutch money,” he said. “A lot of the players we will be talking to are traditional asset managers, pension funds and insurance companies. When you are able to go there, that’s when you really can mobilize money.”