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SURS Illinois’ farmland entry nudges Homestead close to $600m target

State Universities Retirement Systems of Illinois' $60m commitment to Homestead Farmland Fund III puts the vehicle just shy of the $550m mark.

Homestead Capital’s Farmland Fund III is within sight of its $600 million target after the State Universities Retirement Systems of Illinois’ made a $60 million commitment to the fund.

SURS Illinois’ debut commitment to a farmland fund, along with a $75 million commitment received from Connecticut Retirement Plans and Trust Funds in April, means the 2018 vehicle has raised at least $537 million. US Securities and Exchange Commission filings showed it had raised $402 million by October 2019. Homestead did not respond to requests for comment.

Farmland will be housed in SURS Illinois’ real assets portfolio, the pension confirmed to Agri Investor in an email, and could grow to make up approximately 5 percent of the portfolio.

The $20.45 billion retirement system’s real assets portfolio is currently valued at $1.3 billion (6.6 percent of the total fund) and has a $2 billion target. Assuming SURS is able to achieve its real asset target allocation as well as the desired farmland allocation within that, the pension could potentially invest around $100 million into the asset class.

SURS’ $60 million commitment to Homestead’s Farmland Fund III has, however, filled the majority of the potential outlay.

The pension confirmed that ag’s positive performance during the pandemic, relative to other asset classes, has not influenced the potential rate or scale of its capital deployment plans into farmland.

“Paced funding through vintage year diversification is a key risk mitigation tool for SURS. Therefore, we intend to invest in farmland at a measured pace,” said the pension.

In response to a question about the rationale behind its decision to enter the asset class, SURS said: “Farmland is driven by factors that are generally not linked to the broader economic cycle, including a growing global population and declining arable land, which helps lead to lower correlation for farmland compared to many other asset classes.

“The ability to apply technological advancements and take advantage of economies of scale through institutional ownership is compelling. In addition, the asset class has historically provided strong and relatively steady income with the opportunity for potentially higher risk-adjusted returns primarily through permanent crop plantings.”

SURS said the geographic and farm-type diversification of Homestead’s investments, along with its experienced team were key reasons for its decision to select the firm for its maiden farmland investment.

“We appreciate Homestead’s approach to farmland investing and the potential for enhanced returns through value-add opportunities,” the pension said of the row crop-focused GP.

San Francisco-headquartered Homestead was founded in 2012 and closed its debut fund on $173 million in July 2015. Fund III’s immediate predecessor, Homestead Capital USA Farmland Fund II, closed on $400 million in late 2016.

Commitments to Fund III have included $100 million from the $76.9 billion New Jersey Division of Investment$25 million from the $8.5 billion Rhode Island State Investment Authority and $35 million from the $8.54 billion District of Columbia Retirement Board, among others.

Homestead had $980.5 million under management as at December 2019.