SFP moves away from fund structure for Iowa farm deal

Founder and chief executive Harn Soper tells Agri Investor how feedback from LPs helped guide the firm’s journey from smaller to larger fund targets and back again, before moving away from the structure entirely.

Sustainable Farm Partners, an investment firm specializing in organic farmland in Iowa, has shifted its strategy from raising a closed-ended fund to forging individual 10-year partnerships between farmers and distinct investment groups, according to its founder.

Established in late 2015, SFP began plans to raise a $40 million fund in support of a strategy focused on converting row crop Iowa farmland to organic production. Responding to feedback from investors wanting a bigger opportunity, in mid-2017, SFP raised the vehicle’s target to $100 million.

In March, SFP founder and chief executive Harn Soper told Agri Investor that stress among ag lenders and changes in the organic strategies of large food companies with which the firm had been negotiating led it to halve the vehicle’s target to $50 million.

Last month, in the first transaction under a new investment model, SFP contributed capital to the purchase of a 150-acre property just north of Fairfield, Iowa from Sustainable Farm Development Group. The property contains 120 tillable acres, on-site production and storage facilities and has been purchased by a specially created entity called Fairfield One LLC.

Though some investors from the original fund did drop out, Soper said, others have remained as LPs in Fairfield One, which is an example of the structures SFP plans to create to partner with Iowa farmers interested in making the three-year transition to organic production. Accepting commitments averaging $150,000, Soper said, SFP expects to pay around $1 million for each farm and is targeting 14 percent returns over a 10-year period, after which the farmers who sold to the partnerships will have the right of first refusal to repurchase the properties.

“It’s been a journey,” Soper told Agri Investor on Thursday, after reviewing the recent history of SFP. “We did spend a lot of time talking to larger institutional investors, not understanding that there were restrictions standing in our way and our plans were just never going to come to fruition.”

Soper said that in those conversations with investors ranging from high-net-worth individuals and insurance companies to sovereign wealth and pension funds, SFP found LPs reluctant to commit to a first-time fund of a relatively small size. Even sector specialists such as agricultural banks often struggle with the complexities of organic agriculture, Soper said, adding that he had the feeling at least some of the institutions were interested to hear about his offering only out of curiosity about the organic market.

“It came down to: if someone gave us $150 million, we could not deploy it immediately, because it takes time to find farms that meet our criteria,” he said.

After finding that SFP was gaining the most traction with broker/dealers who served as conduits to high-net-worth individual investors, Soper said, the firm then found it was ill-equipped to deal with the volume of such broker/dealers and the administrative challenges of dealing with such investors’ liability concerns.

“We just found our universe was shrinking as we learnt more and got more feedback,” Soper said. “We were too small, we were too new and it was an asset class that the standard investment networks were uncomfortable or unfamiliar with.”

In addition, SFP was founded with an eye towards promoting the principals of sustainable agriculture in addition to providing a strong financial return and Soper said it was difficult to find LPs also focused on such issues.

“The most common question was: ‘How much are we going make and how soon can we make it?’ It had nothing to do with any ethic or sustainability or food security; the things that were part of our mission,” lamented Soper. “We just didn’t fit their mold very well, or at all.”