Scaling support from large LPs drove Paine’s Fund VI beyond target

The sixth iteration of Paine Schwartz Partners’ flagship agribusiness fund benefited from a larger portion of LPs drawing from real assets and impact investing allocations as they scaled their support for the fund.

Chief executive Kevin Schwartz told Agri Investor there was no clear pattern in the relationship between investor type and the buckets from which they drew to back Food Chain VI, but the percentage drawing from general private equity allocations was lower than in previous vehicles.

“The real asset strategies that are investing with us typically have a focus on natural resources and/or food and agriculture directly and they are seeking high-return potential exposure to the segment,” he explained. “We tend to be the high-return potential strategy in which those types of sector-focused, sector-aware investors deploy capital.”

Paine Schwartz closed Food Chain Fund VI on $1.7 billion in September, surpassing its $1.5 billion target through commitments from a combination of pension and sovereign wealth funds; family offices, foundations, endowments and “other institutional investors.” The firm already had line of sight to more than $1 billion at the time of its August first close and had secured all of that capital by December, Schwartz said.

That early fundraising momentum was helped, he added, by developments in other markets like healthcare and software that had previously overperformed and more recently served to highlight food and ag’s resilience and downside protection.

“When you overlay the current market fundraising dynamics, we are super appreciative for the scaling support we received from existing LPs and the high-quality new investors, which actually were predominately from the US,” Schwartz said.

North American investors accounted for about two thirds of capital within Fund VI, according to Schwartz, who explained the remaining LPs are located throughout the rest of the world. Soon after Paine Schwartz closed its fifth fund on $1.4 billion in late 2019, Schwartz told Agri Investor the addition of new sovereign wealth fund investors from the Middle East and Asia played an important role in pushing that vehicle’s final close past its $893 million predecessor.

He noted that Fund VI investors include LPs from both of those regions and that commitments among what he called its largest LPs increased by an average of one-third, and in some cases as much as half, between Funds V and VI.

“We haven’t really broadened our focus on, or search for, capital in those regions [Asia and the Middle East], but we have very significant LPs that not only helped us grow our AUM between Funds IV and V, but also because of the upsizing they did between Funds V and VI, they have continued to grow and be a meaningful part of our LP base.” Schwartz said.

Schwartz declined to comment on whether McKinsey and Company, with which Paine Schwartz has a research partnership, is among the investors in Food Chain Fund VI. Materials presented to the State of Connecticut Investment Advisory Council in late 2022 described plans by McKinsey, which declined to comment, to become a LP in the vehicle, “whereas in the past it had only participated in carry.”

Other commitments to Fund VI have included the District of Colombia Retirement Board, the Rhode Island State Investment Commission and the El Paso Firemen & Policemen’s Pension Fund.

Schwartz said the recent fundraising slowdown across private equity markets has helped highlight the advantage of domain expertise that is at the core of its strategy, which targets gross IRRs of up to 25 percent through investments of up to $500 million into crop and animal productivity, controlled environment ag and other agribusiness markets.

“Other than the very, very large, diversified bulge bracket private equity firms, it’s pretty difficult right now to describe a generalist mid-market private equity strategy that’s going to deliver through cycle sustainably differentiated returns,” he said.

Paine Schwartz currently has $5.7 billion in assets under management.