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The right education

The agri fund management and advisory community should move on from describing the market’s macro appeal to sharing practical and educational investment advice with institutional investors, and vice versa.

At last week’s Agri Investor Forum in Chicago, most speakers tried to avoid mentioning the World Bank statistic that 9 billion people will need to be fed by 2050. Or that $83 billion of investment each year is needed if that is to be achieved. The audience of 150-plus fund managers, institutional investors and advisors were no strangers to the macro-fundamentals that make investing in agriculture and agribusiness an appealing prospect.

Instead, we encouraged the focus to be on what the agri investment market now needs: practical advice, information, examples and other useful tools for mobilising a lot of interested investors into actually deploying capital.

Educating the right people within the broader investment universe is still a problem, speakers at last week’s Forum revealed. While asset managers and the institutional investors specifically charged with evaluating them are increasingly well-versed in the dynamics and risk/reward profiles within agri’s various sub-sectors, many institutions’ larger investment committees or board members are not. That’s a problem that’s plagued alternatives for some time – public pension boards comprised of teachers, firefighters or other members of the public often need a good deal of education to understand the complexities of private markets investments and feel good about green-lighting investments.

Mark Canavan, the outspoken head of real assets for New Mexico’s $11.3bn Educational Retirement Board, highlighted this issue during an institutional investor panel discussion. He recalled that his first-ever potential agriculture investment, a discounted portfolio of aggregated farmland, was rejected by the board because a few of the portfolio’s assets were close to the Mississippi river. “They said the land could get flooded and the conversation spiralled down from there,” Canavan told delegates. “But flooding is what makes the land so fertile,” Canavan later told me.

A board with a better understanding of the agri investment market would have realised that buying an already-established portfolio of farmland at a discount is almost unheard of; aggregating farmland increases its value so it usually sells at a premium. “It was a dream and was already diversified but it got shut down,” he said.

Canavan acknowledged that it was his fault for not properly preparing and educating the board before putting that first investment to approval. Even if the committee had understood the macro appeal of agri at the time, they were not up to speed on the minutiae of farmland investing.

The benefit of education over the following year meant that the same board approved another deal with the same manager a year later, said Canavan.

This anecdote served to remind a number of fund managers in the crowd that their task goes above and beyond getting an institution’s portfolio manager on board if they hope to garner fund commitments or co-investment capital. They have to be advocates for more than just their own strategy – not just pitch their product, but also offer to help educate or provide additional materials to board members less familiar with agri investing.

And this fits into wider advice from institutional investors speaking at the conference to make your investment theme clear from the outset. Find out what makes an institution tick. Don’t lead conversations with talk of fees. It might seem obvious but it was apparent at the forum that many managers present a very general pitch to investors, which is unlikely to hold LPs’ attention and make them want to hear more.

Agri investing is still very much at a nascent stage and while the educational needs will differ from institution to institution, all market participants should be open to providing and receiving practical advice and ideas from their peers if the sector is to attract more institutional capital, grow and flourish.

What experiences have you had with LP boards? Please get in touch at Louisa.b@peimedia.com.