India, Malaysia and Ukraine are among the markets where The Rohatyn Group hopes to build on its experience in other sectors while searching for agricultural opportunities, according to the emerging markets-focused firm’s founder.
Speaking to Agri Investor upon finalization of TRG’s August acquisition of GMO Renewable Resources – formerly the agriculture and forestry unit of investment firm Grantham, Mayo, Van Oterloo – chief investment officer Nicholas Rohatyn labeled the move “an easy decision.”
Growing attention on climate change and impact investing have helped stoke institutional investor demand for agriculture, according to Rohatyn, who said he has already received positive feedback from investors about TRG’s expansion in the field.
“Forestry and agriculture are clearly important sectors in emerging markets around the world, regardless of the region,” Rohatyn said. “Given the importance of the themes of agriculture and forestry within EM, but also the need for a global expertise and history in those two sectors, this group represented a really unique opportunity.”
Presence in both markets
GMORR was founded in 1997 and manages a total of 600,000 hectares that include both hard and softwood timber as well as cropland located throughout the US, Brazil, Panama and elsewhere. TRG’s acquisition will see the firm assume control of offices in Boston and New Zealand formerly maintained by GMORR.
Eva Greger, GMORR founder and now partner at TRG, told Agri Investor that though the firm’s focus is on emerging markets, GMORR also makes agricultural investments in developed markets such as the US, New Zealand and Australia. While attractive agricultural opportunities exist in such developed markets, Greger said, those opportunities often follow a passive strategy that offers limited returns and leaves little room for managers to add value.
“There is more operational risk in emerging markets, but there is also a lot more opportunity to change practice on the ground and make investments more profitable and more sustainable. But it does require capacity to act directly,” Greger said. “We don’t invest in every emerging market. We have to be very comfortable that we can get on-the-ground managers that will operate to our standards.”
Being active in both developed and developing markets simultaneously is also useful for monitoring acquisitions and asset values across regions, Greger said, adding that such analysis can be key in determining how to weigh the less tangible risks of operating in developing markets.
In determining which emerging markets might be most promising, Rohatyn said that the firm has monitored investments by development financiers, which he labelled “leading-edge institutions”.
“There’s a whole ecosystem around developing things so that they become investible for us, so it is useful to follow what they [DFIs] are doing,” Greger echoed. “My hope is that they can make some really good investments and help develop the on-the-ground management teams that we would want to hire when we decide it’s time to move into that country.”
Rohatyn observed that DFIs have made agriculture increasingly central to their approach in recent years, adding that such institutions often serve as a leading indicator of the direction the wider investment community is likely to move. He cited the increased focus on impact, climate and ESG as an example.
Markets to watch
While that growing focus on impact and the environment helps support institutional demand for agriculture, Greger highlighted the search for yield as another factor important to investors considering a commitment to agriculture. Given the higher returns possible through investments in developing markets, she said it is important to distinguish between countries where political risk can determine the profitability of an investment (like Ukraine) and others where such risk is just one of many potentially important factors to monitor (such as Uruguay).
“The unfortunate truth of the investment world is that it’s always a tougher sell at that point in time when it’s actually a better buy”
Eva Greger, The Rohatyn Group
Stressing that the decision to enter a new market happens very slowly, Greger said that she looks forward to utilizing TRG’s existing familiarity with key emerging markets in strengthening the firm’s overall understanding of broader country risk within key emerging agricultural markets.
Rohatyn said while TRG has had relatively little experience in other sectors in Africa, the firm does intend to look for agricultural opportunities there. He added that although Asia is not overlooked in discussions of global agriculture, India, Indonesia and Malaysia are also among the countries where TRG hopes to build on its experience in other sectors and search for agricultural opportunities.
While the firm is not yet invested in either market’s agricultural sector, TRG is continuing to look for relevant opportunities in both Russia and Ukraine, according to Rohatyn.
“The unfortunate truth of the investment world is that it’s always a tougher sell at that point in time when it’s actually a better buy,” Greger lamented. “It’s our job is to educate clients and explain why it’s a good opportunity.”