When Veripath Farmland Partners director and co-founder Stephen Johnston entered the Canadian farmland space with Agcapita in 2007, he and his private equity-schooled co-founders assumed institutional investors would be the most receptive investor group to a distinct ag vehicle.
“They were very indifferent or resistant to the idea. There was no belief in the historical financial performance, things like the low volatility, the lack of correlation and all of the other interesting characteristics,” Johnston tells Agri Investor.
“There was skepticism around pricing discount acting as a return driver and 14 years ago there were a lot of institutional investors who just didn’t have a formal allocation, so they had no idea where to put it. They would think, ‘If we do allocate to farmland, where does it go? In what bucket?’”
Retail investors, meanwhile, fresh from having suffered big losses due to the global financial crisis, understood the appeal and farmland’s virtues immediately resonated with them – so much so that of the seven funds Ag Capita has raised since 2007, six have been funded exclusively by retail investors, with the firm’s seventh being its sole institutional vehicle.
Veripath was launched in 2019 to build on the 14-year track record of the Agcapita management team – which claims a 12 percent unlevered IRR on farmland and a 4 percent yield on annual cash rental payments – with two open-end funds open to both institutional and retail investors.
The vehicles follow the same buy-and-lease strategy used by their predecessors, focusing on assets that can be acquired at a discounted price per ton of wheat growing capacity, for which Johnston says the global average is C$6,000 ($5,000; €4,000).
“In Western Canada, which is around 80 percent of Canada’s farmland and is about 150 million acres, the price for a ton of wheat growing capacity is about C$2,000,” Johnston says. “You can see it’s a very large fundamental discount. So, we’ve always been trying to capture that productivity discount in the least volatile way possible, hence we don’t operate farms, we just own the land. That’s our thesis and it hasn’t let us down in 14 years.”
The two funds hit a milestone in early July, growing to $160 million in AUM since their end of 2019 launch – the same AUM figure Agcapita managed to reach after 14 years and seven funds. The management team’s track record has no doubt finally helped attract Canadian institutional LPs to the vehicles, which have an investor split of 75 percent institutional and 25 percent retail. The larger institutional weighting is due to the bigger sums deployed, but Johnston still expects retail investors to continue representing a significant source of Veripath’s capital.
Over on the south of Canada’s border, US crowdfunding investment platform FarmTogether – another manager that is keen to offer retail investors an avenue into farmland – also hit an AUM milestone this summer, growing to $100 million of assets managed in June.
FarmTogether chief executive Artem Milinchuk confirmed to Agri Investor that 80 percent of its assets are crowdfunded, with 20 percent housed within its sole-ownership offering, which functions as a separate account for single high-net-worth clients.
The company also recorded a 200 percent growth in registrants to its platform in 2020, again largely made up of retail investors, along with a handful of high-net-worth individuals and wealth managers. “We’re expecting to continue the growth we witnessed in 2020 over the next one-to-two years,” said Milinchuk, adding that FarmTogether expects to draw in further investment advisers, wealth managers and institutions to the platform.
As the AUM milestones of both companies and their keenness to continue catering to retail investors shows, the investor group will be a mainstay of the farmland space as long as investment channels are open to them.