The stubborn fundraiser

Trade tantrums have yet to deter North American managers from raising ag-focused vehicles – with reasonable success. What is behind the asset class’s resilience?

The inflationary nature of Donald Trump’s trade policies is visible even in the language he uses to describe them. As he announced changes to NAFTA agreed with Mexico on Monday, the US president described the revamped treaty – once seen as the “worst-ever” – as an “incredible deal.” On other fronts, however, progress has been less incredible: relations with Canada, NAFTA’s third signatory, remain icy; Washington and Beijing are still threatening each other with tariffs that would dwarf those imposed last week.

That’s not helping to lift spirits in North America’s countryside. As we reported last week, July – the latest month for which estimates are available – saw the largest drop in agriculture producer sentiment since Purdue University and CME Group launched a monthly gauge of farmers’ morale three years ago. Reduced export income and low prices are chief reasons for this pessimism, which in turn feeds into a “wait-and-see” attitude among US institutional investors, Chess Ag Full Harvest Partners’ Shonda Warner told us.

And yet fundraising seems to be continuing on both sides of the US’s northern border. Bruce Rastetter, founder and chief executive of Summit Agriculture Group, an Iowa-based private equity firm, expects to hit a $75 million first close next month on the agribusiness vehicle it launched in April. Last week, we also learnt that Canada’s Bonnefield Financial has collected C$80 million ($61.4 million; €53 million) for the third close of its fourth farmland investment vehicle, bringing the fund’s size to C$211 million.

These figures need to be put into context: Summit remains some way off its $300 million target, and totals remain modest compared with more generalist private equity offerings. What’s more, the fallout from trade disputes seems to have slowed fundraising, at least in some segments. But Summit and Bonnefield’s progress suggests the North American ag fund universe is not inert. Managers from outside the region, we hear, are also looking to make an entry – in areas ranging from mega-sized ranches to organic grain.

There are several ways to explain such resilience. It may be that managers share the views of many farmers, who, as Rastetter contends, see the consequences of Trump’s efforts as necessary short-term pain to reap a long-term gain: a greater opening of overseas markets to American produce. If that was so convincingly the case, however, the Purdue/CME survey would have highlighted cautious optimism, rather than growing nervousness. After a series of lean years, many growers find even short-term pain difficult to bear – and few think Trump’s $12 billion emergency aid answers their needs.

It could be, instead, that managers are playing a more cynical game: the sector’s financial woes are bound to generate distressed opportunities. As we’ve noted before, bankruptcies are certainly mounting. But banking on this sole trend sounds dangerously opportunistic, and few funds are being raised with this mandate. Those who do look at such assets couch their moves in cautious language – “if the trade wars do get some legs, in that we will have maybe some quasi-distressed opportunities,” Open Prairie’s Jim Schultz told us this month.

The sturdiness of ag funds owes to a more complex mix of trends. On the investor side, macro volatility is casting ag in a favorable light – especially so when assets are being housed in long-duration vehicles capable of riding out short-term bumps and the vagaries of a cycle. On the pipeline side, structural trends continue to create opportunities to invest: generational change, the shift to sale-leaseback, the build-out of organic supply chains, data digitalization. In the Trump era, novelty fades quickly. These new trends, however, are more enduring than they seem.

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