State-owned investors now covet agtech more than farmland – Global SWF

Food security fears made food and ag-focused technology a 'small but important' part of SOI investments in 2020, reflecting increased sophistication among operators.

A pre-covid-19 trend that saw state-owned investors divert their attention away from real assets toward agtech has been accelerated by the pandemic, said a managing director at Global SWF.

“Back in 2010, Qatar had a vehicle called Hassad Food and they were buying plots of land everywhere – in Pakistan, in India, Australia, Brazil,” Diego Lopez told Agri Investor soon after the consultant and data provider released its annual report in early January.

“Sophisticated sovereign wealth funds are not looking too much into land anymore. What they are looking into is to add value into the irrigation and processing value chain. That’s why we call agtech an evolution of the general industry. We think it’s what investors are tending to these days.”

Global SWF’s report describes how the threat of a food security crisis helped make food and ag-focused technology a “small but important” part of investments by SOIs in 2020.

It highlighted S$306 billion ($231 billion; €187.9 billion) Temasek’s acquisition of an 85 percent stake in Israel-headquartered Rivulis Irrigation for $365 million in September and GIC’s lead role in a May financing round for food waste-focused Apeel Sciences as recent demonstrations of Singaporean funds’ established focus on the sector.

Temasek’s investments into Impossible Foods and Australian plant based meat provider V2Food were also mentioned along with C$559.05 billion ($440.53 billion; €361.93) Canada Pension Plan Investment Board’s July participation in a $300 million Series C round for flora-derived protein provider Perfect Day.

Lopez founded Global SWF in 2018 after advising sovereign funds at KPMG and PwC, according to his LinkedIn profile. He said that while land remains an important asset class for SWFs, often categorized with infrastructure and defense assets as “national champions,” state-backed investors have become more interested in other parts of the supply chain in their pursuit of food security.

He added that although there is always potential for opportunistic real assets acquisitions given the long horizons on which SWFs invest, growing focus on technology across industries reflects the increased sophistication of some in the market.

Global SWF defines the SOI market as including $9.1 trillion managed by sovereign wealth funds and $18.4 trillion held by public pension funds. It reported that 2020 saw caution and logistical challenges lead to a 33 percent annual decrease in deal volume among SWFs, which deployed $83.7 billion across 280 transactions last year, according to the report.

Comparing developments following covid-19 with the period after the global financial crisis, Global SWF said each period saw SWFs acting in the spirit to “never waste a good crisis.”

Whereas the GFC saw savings funds like CIC, QIA and ADIA acquire stakes in distressed financial institutions, the report notes the post-covid period has seen development-focused funds like Mubadala, Temasek and Saudi Arabia’s $300 billion Public Investment Fund act quickly to acquire strategic assets.

“SOIs can no longer be referred to as ‘dumb money’ and are now seasoned investors that rigorously examine strategy, allocation and risk,” wrote Lopez and co-author Daniel Brett.

The abundance of capital in the SWF market is changing its dynamics rapidly, said Lopez, who highlighted recent reports of Indonesia’s Nusantara Investment Authority attempting to raise up to $15 billion from Carlyle, Blackstone and other firms.

“The LP was approaching a GP for capital, when it’s supposed to be the other way around,” he said.

The basic lack of transparency surrounding sovereign funds makes assessment of investment returns especially difficult, said Lopez. Global SWF’s report examined returns among SWFs and found an average return of 5 percent over the past 12 years, results the report labels as “illuminating and troubling.”

“Some of them [SWFs] have a staff of 1,000 people, 2,000 people and they are not able to generate an alpha that is too impressive,” said Lopez, whose report used benchmark comparisons to calculate a SWF industry alpha of 0.2 percent. “When they go private and direct, it’s to scout for higher yield.”

A recent development that could shape the way SWFs approach agriculture, said Lopez, is the creation of funds with a mandate to support domestic development.

Global SWF’s report points out that Germany, Japan and Taiwan are among countries with projected surpluses that could opt to launch investment funds in coming years. Lopez added that India, Indonesia and Djibouti have all recently launched SWFs with a specific focus on domestic development.

“Funds that had a domestic portfolio, such as Temasek or Mubadala, are increasingly pressured to deploy capital in country as well,” said Lopez. “That inevitably creates a competition for farmland in their home countries as well. If you think about farmland in India or in China, they have sovereign funds, maybe they will compete for those assets as well.”