Southern Pastures has $500m hard-cap for second farmland fund – exclusive

The New Zealand dairy fund manager's second fund, launched just five months after the closure of its first fund, has a target of $300m with a hard-cap of $500m.

Southern Pastures, the New Zealand dairy fund and largest institutional farmland manager in the country, has launched its second fund with a hard-cap of US$500 million (€448 million), Agri Investor can reveal.

Prem Mann, Southern Pastures’ chief executive, told Agri Investor that although the target size is $300 million, the fund “has an ability to take subscriptions up to $500m.”

The launch comes just five months after the firm closed its first fund on $300m. Investors in Fund I included Sweden’s Kr284 billion ($32 billion; €30.4 billion) AP1 pension fund, which is understood to have invested more than $70m in that fund. Mann said that commercial sensitivities prevented him from disclosing whether AP1 has backed the new vehicle.

Dairy farmland investment in New Zealand has been in the spotlight recently after the New Zealand government blocked a deal by Chinese conglomerate Shanghai Pengxin to buy the NZ$70m Lochinver dairy farm. Some investors labelled the decision “counterproductive” at a time when New Zealand needs investment and the dairy industry is struggling with a global glut of product and falling prices.

New Zealand is a capital importing country and the government has a policy of materially increasing agricultural exports. We see the reasons for the rejection (of the Shanghai Pengxin takeover) as being specific to that transaction,” Mann told Agri Investor. “New Zealand has clear and objective rules for inbound farmland investment and there have been no changes to these.

On the wider price environment, Mann said that “while short-term dairy prices are volatile, land prices react to longer-term trends. This means that long-term total returns are far more stable. With our low-cost, pasture-based, free-range and animal-welfare based farming system, Southern Pastures is positioned to navigate through the volatility to its long-term advantage.”

Mann believes that the current volatility “is a boon to low-cost producers as each downturn forces higher-cost competitors to cull cows thereby inevitably increasing dairy prices.”

Southern Pastures is backed exclusively by institutional investors. Earlier this year the $11.3 billion New Mexico Educational Retirement Board (NMERB) approved a $30 million investment in the firm’s first fund, only to back out after the two parties failed to reach agreement on terms. “Institutional investors remain interested in New Zealand dairy due to its unsubsidised and unprotected competitiveness, along with its near-pure exposure to the growth in the global demand for dairy, with 97% of production exported,” said Mann.