GPs regularly complain that investment consultants’ rigid categories and cautiousness regarding novel approaches is a drag on efforts to evolve agriculture into a mature asset class.
Yet, if there is one thing for which you cannot reproach Martin Thompson, a senior consultant at Frontier Advisors, it is his acknowledgement that the sector is destined to become a favorite among institutional investors.
“The actual base of assets is so large, and yet it hasn’t been converted into institutional-style investments, at least in Australia,” he told Agri Investor. “A large percentage of it is still owned by families.”
On the part of fund managers, it is not for want of trying. Thompson believes many of them are coming forward with ideas to access the market, “more than I’ve seen in timber,” but that the funds, bar a few exceptions, are “all quite small.”
This lack of scale is one reason why the asset class has not yet become much bigger – as is the short track record of funds dedicated to it. “Over the course of the past 10 years, a lot of strategies have performed quite poorly,” he noted, cautioning that his assessment was mostly true of Australia. “Some have turned around recently, but largely thanks to cattle prices.”
Frontier Advisors released a report on timber and agri last month – a move Thompson said came in response to “an underlying current of interest in agriculture” on the part of investors.
But the study argued that fees charged by dedicated managers were “generally high” relative to most other asset classes – with base fees at around 1 percent for timber, plus potential performance fees, and more than 1 percent for agri, often also with compensation attached to performance – a theme Thompson said was especially relevant to investors Down Under. “Australia is pretty fee-sensitive,” he observed.
Thompson said that changing regulation could also be a worry for some institutions. In a comment that also referred to infrastructure, he noted that “a lot of sectors have regulatory risk that people just don’t appreciate.”
Still, he thought it was a matter of time – how much was not easy to say – before the opportunity becomes easier to tap. “As investor money pours into these sectors, assets will be turned into more institutional-quality assets. It will be a gradual move but there’s no real cap on how big the market could get.”