Sapient Capital Partners launches A$350m dairy fund – exclusive

Investment manager Sapient Capital Partners is targeting a net IRR of 12%-14% for its first dairy fund, which has lined up a seed portfolio of assets in Australia.

Australian fund manager Sapient Capital Partners has launched its first pooled fund in agriculture, seeking an initial A$52.5 million ($41 million; €34 million) for its Sapient Dairy Fund.

The vehicle’s initial raise will be used to acquire a portfolio of seed assets in Tasmania and Victoria, with the goal of building a portfolio of dairy assets in Australia and New Zealand worth A$350 million.

Further equity and debt raises are expected to be held in future “for accretive acquisitions that meet our investment thesis”, Sapient Capital Partners principal Gerard Bongiorno told Agri Investor. The firm’s aim is to acquire properties that are located either in high-reliability rainfall areas or that are backed by irrigation and where there is scope for improved productivity and profitability through active management.

The seven-year closed end fund is targeting a net internal rate of return of 12-14 percent, a significant portion of which is expected to come from cash yield.

Sapient has secured debt funding from ANZ to help finance the acquisition of the seed portfolio.

Cameron Hall, also a principal at Sapient Capital Partners, said the firm felt the time was right to establish a dairy vehicle due to changes that are occurring in the sector in south-east Australia.

“The move to establish a fund focused on dairy is driven by the restructuring and relocation of significant amounts of dairy out of northern Victoria, where the Murray-Darling water supply is being targeted by alternative agricultural uses and, in dry years, has proved to be too expensive and not reliable enough for dairy, in the main,” he said.

The strategy is to own and operate the farms, with farm operations carried out by Compass Agribusiness. Sapient could not disclose specific details of the farms that it is set to acquire.

“The vehicle itself is structured to delivered strong, reliable income from long-term offtake agreements for our milk, as well as long-term input agreements to lock in our costs,” Bongiorno said, adding that the firm is talking to domestic and offshore investors.

“The fund will also obviously provide exposure to capital growth, with rural land in Australia still relatively low-valued compared to rural land in other parts of the world.”

Rural Bank’s most recent Australian Farmland Values report showed that the median price per hectare of Australian farmland rose by 12.5 percent in 2020, the seventh consecutive year of growth.

Sapient has partnered with consultancy Food and Agribusiness Australia in developing the fund, with the former’s principals Hall and Anthony Guinness also serving as investment consultants at FAA.

“We’ve worked with Sapient on a number of projects over the last five or six years, and we’ve looked at structuring an investment vehicle on a number of occasions, but until this point it was just the wrong time, or we weren’t able to identify the right group of assets that could come together quickly to comprise the seed portfolio,” Hall said, with collaboration between Sapient and FAA in 2020 on opportunities in dairy leading to the establishment of the fund this year.

Bongiorno added that Sapient had been examining opportunities in the sector for some time but had not found the right opportunity until now.

“We believe this is a good investment, that provides a good yield in the current environment, with a strong risk-adjusted return,” Bongiorno said.