Swimming downstream

Aquaculture could be an exciting ride for investors prepared to invest across the value chain and the globe.

Whether it’s a function of Agri Investor’s growing reach, or an actual increase in activity, aquaculture has been increasingly on my radar in recent weeks.

Already this year, I have heard about the upcoming launch of an aquaculture fund from venture capital firm Seven Funds and the deployment of a global open-ended fund – Aqua-Spark – dedicated to the sector. The latest private equity fund from Paine & Partners, which closed ahead of target, on $893 million, earlier this month, will also dedicate a good portion of its capital to fish.

Declining natural reserves of fish are encouraging the development of the sector and it’s a complex game; there are many moving parts for the private sector to get involved with from lowering the cost of fish feed, to improving circulation technology and fish health to, of course, pure production.

The existence of inefficiencies across the value chain means that most private investment plays are offering investors diversified exposure along the value chain. This presents a contrast to many agriculture fund plays that tend to focus more specifically on farmland, or production, or technology.

Through this investment strategy, many of these investment firms are hoping to create a vertically-integrated aquaculture business so the potential returns on offer are very appealing, particularly to investors with a private equity lens on agri.

Based on dividends alone, Aqua-Spark is hoping to return 12 percent to investors each year, although chief executive Mike Velings told me that in reality this figure is likely to be much higher. The potential for returns from a strategic sale at exit could be huge if a large corporate operating in the sector is involved.

Aqua-Spark and Abacus Emerging Markets have presented the case for improving the fragmented aquaculture markets of developing countries – which can be as simple as securing a source of good quality fish feed. In this sense Aqua-Spark’s acquisition of a US biotechnology company that is producing a protein-rich fish meal alternative, alongside a tilapia producer in fish feed-short Mozambique, makes a lot of practical sense. It also highlights the wide array of potential synergies the private investment market is primed to establish.

Improvements in fish feed supply globally and technological advancements in production are expected to increase aquaculture production by 35 percent in 12 years, according to FAO estimates. So venture capital, private equity and real assets investors committing to the space should be in for an exciting ride.

What are your views? Please get in touch at louisa.b@peimedia.com.