When we caught up with Tiverton Advisors managing partner David Chattleton in February, two key takeaways emerged from our conversation. The first was the dissatisfaction being experienced by some traditional borrowers at how they were being treated by bank lenders.
“If there is an issue, not only are they [lenders] trying to get rid of you, nobody wants to take you on. There are situations that are more sizeable and of a higher credit quality than there have been at any time in the last five or six years,” Chattleton told us.
The second, more upbeat takeaway was that following a three- to four-year period when all the talk surrounding agriculture was about headwinds, the sector’s resilience in the face of the covid-19 pandemic had allowed managers to showcase their ability to manage risk.
“The tone in the market, from a fundraising perspective, is pretty healthy right now. The consultant community and larger pools of capital are slowly coming back to agriculture after taking a bit of a hiatus for a few years,” he added.
What Chattleton could not tell us at the time was just how well the combined tailwinds of a retreating banking sector and a rekindled interest among larger LPs were aiding Tiverton on the fundraising trail.
The firm surpassed its $300 million hard-cap on the Tiverton AgriFinance II credit fund to close on $325 million at the start of July, and secured approximately $115 million in co-investments to take an impressive $440 million for the strategy.
A Reuters 2019 analysis of Wall Street banks’ farm-loan holdings illustrated the pace of the banking sector’s retreat from agriculture, following a post-global financial crisis binge when JPMorgan, for example, grew its farm-loan portfolio by 76 percent to $1.1 billion between 2008 and 2015. Agricultural loan portfolios of the US’s top 30 banks fell by $3.9 billion to $18.3 billion between its peaks in December 2015 and March 2019, Reuters reported, which is a 17.5 percent decline.
This banking retreat is doing two things: it’s creating an obvious credit vacuum that presents an opportunity to GPs such as Tiverton; but it also means the firm can more readily find the “more sizeable” and “higher credit quality” opportunities Chattleton referred to in February, by providing loans in the $25 million to $100 million range.
A source familiar with the firm’s strategy told Agri Investor tickets in this range are considered “a no-man’s land” by large banks, because the debt client is “likely to be a big farm but is not really an agribusiness yet, so Tiverton has found an underserved niche there.”
The source added: “A lot of the banks, particularly over the last 12 to 18 months, have been skittish and have pulled back from ag debt. In fact, some of the large players have actually redlined new loans entirely.”
Taken in tandem with developments at Fiera Comox last July – which launched its first credit strategy aimed at the US and Europe to supplement its equity and agriculture plays – ag debt is clearly there for the taking.
Tiverton and Fiera have visibly made their presence known – who else is going to join them?