SCERS could deploy up to $80m in ag and timber amid $210m real assets buildout

The pension has been drawn to ag because the pandemic showed the importance of the food supply chain and few investors are targeting the opportunity.

Sacramento County Employees’ Retirement System could invest up to $80 million across two funds dedicated to investing in “ag, minerals and timber.”

Controlled environment ag, permanent crops and the global food value chain are among seven strategies that will be the focus of the pension’s $210 million real assets buildout, which targets five commitments of $40 million each this year.

The investment plan was presented at a February 17 meeting of the $10.1 billion pension’s Board of Retirement, which specifically mentioned permanent crops in North America and Australia, and North American controlled environment ag as areas of interest.

A SCERS overview in the meeting materials summarizes the headwinds that have faced US agriculture in recent years and the “considerable effort” staff spent with general investment consultant Cliffwater to identify opportunities in a “limited” universe of dedicated managers.

“Although the agriculture sector is vast and global, it has had difficulty attracting institutional capital. Nevertheless, the pandemic has shown how important food supply and the food supply chain is to our everyday life,” SCERS staff wrote.

“Staff has conducted considerable amount of research in agriculture and continues to support investing in the space, particularly since there are few investors targeting the opportunity.”

SCERS existing agricultural investments include a $25 million commitment to Agriculture Capital’s ACM Fund II in 2017 and a late 2018 commitment of $40 million to Paine Schwartz Partners’ Food Chain Fund IV.

The report includes references to SCERS’ interest in general markets, including the global food chain, environmentally-driven investment strategies and sector-specific real assets. It notes how increased consumer attention to issues of food safety, quality and health are leading to changes most visible in the proliferation of plant-based meat substitutes, meal delivery services and agricultural biotechnologies.

“The innovations in agriculture and the rapid changes in food production could potentially present exciting investment opportunities,” SCERS staff wrote.

Elsewhere in the meeting materials, Cilffwater notes that while infrastructure distinguished itself among SCERS’ real asset investments by being the most insulated from the market volatility of 2020, the energy, ag and timber sectors saw material impacts from the travel, transport and sheltering changes brought on by covid-19.

“The pandemic has also added a great deal of uncertainty to both timberland and farmland,” Cliffwater wrote. “Farmland was negatively impacted by pandemic-related production and transportation disruptions, as well as shifting demand from foodservice companies and grocery stores.”