Sherpa Asset Management, a family office, expects to hold a $50 million first close in June on its diversified, own-and-operate farmland fund, SIP LatAm Agrifund. The 10-year private equity fund is targeting $300 million for its final close.
Sherpa has a track record in ‘transformation farming’ in Latin America as a major shareholder of Campos Orientales, the farm management firm across Argentina, Paraguay and Uruguay. It has also led a club deal by family offices investing into a soybean crop farm in Brazil.
It currently has soft commitments for the SIP fund from family offices and high net worth individuals totalling $35 million and has just started meeting institutional investors after hiring PriceWaterhouseCoopers as its placement agent two weeks ago, according to Gilles Plaquet, Sherpa’s chairman.
Sherpa will also make a GP commitment of at least 10 percent of the fund, using the proceeds from selling farms in Campos Orientales, according to Plaquet. The fund’s terms and conditions change according to commitment size: it will charge a 1.5 percent management fee for commitments over $25 million; 1.75 percent for those between $5 million and $25 million; and 2 percent for less than $5 million. A yearly revenue payment of 7 percent will be paid to investors with a 80:20 profit split between investors and the GP.
The fund is targeting an internal rate of return of between 10 percent and 14 percent and will invest into between seven and 15 assets over a four year investment period. The 10-year fund has two one-year extensions if needed, like most standard private equity vehicles.
Sherpa plans to start deploying capital in two or three projects before the end of the year – possibly in Paraguay, Colombia or Brazil, Plaquet said.
“We are keen to start showing investors what we are doing and the way we are doing it,” he said.
The fund’s investment strategy is centred on operational improvements; it will buy cheap land that is not being managed to its full abilities, and create value by transforming its operations. This could entail buying a cattle farm with good quality soil to start growing crops as well as maintaining some cattle, or developing the farm’s infrastructure.
“In some regions of Paraguay, Brazil and Colombia, we find very cheap land with soil that is suitable for agriculture. We tend to prefer pasture land because it’s already operating farms with all the titles and authorisations in place,” said Plaquet. “We enrich the soil with limestone and gypsum when necessary and after two-to-three years, we might initiate a rotation with corn and cotton.”
“In some cases we mix crops, cattle and dairy to optimise the usage of surface. By acquiring farms close to developing large infrastructure projects (railroads, roads, water transportation), we’ll obviously have a double positive effect on our farm value; the added value from the transformation and also from better infrastructure.
Plaquet and his colleagues have identified a diversified pipeline of deals throughout South America including a permanent crop and vegetable farm in Colombia, a rice farm in Paraguay, a cattle, wheat and maize farm in Uruguay and a pineapple plantation in Colombia.