Agri Investor last week held its inaugural Tokyo Forum, a gathering of Japan’s top LPs, who were keen to learn more about the farmland and forestry asset classes. With panels dedicated to Japanese ag perspectives, Australian farmland, agtech and building a forestry portfolio, among other topics, local investors soaked up a range of views as they weighed future allocations to the asset class.
Here are four key takeaways:
Struggles with categorization
Several investors speaking on panels and off-stage to Agri Investor noted that one factor holding them back from investing in agriculture has been uncertainty as to which bucket investments should be made from. Without a dedicated allocation, does it fit best in real estate, infrastructure, private equity or somewhere else?
Despite uncertainty, one silver lining was apparently: with many Japanese LPs now building significant allocations to infrastructure, the real assets sleeve has become quite large for many, offering a more logical home for farmland and timberland. Don’t expect to see dedicated allocations to natural capital from many Japanese LPs any time soon – but there is increasing comfort at where it can fit within existing portfolios.
Inflation hedging benefits
Japan has so far not seen the rampant inflation afflicting most western nations. And as Yoshi Kiguchi, CIO of the Pension Fund of Japanese Corporations, said: “Our pension payments are not linked to CPI, so payments do not automatically increase with inflation. Which means inflation has not been something we have been thinking about too much.”
But investors acknowledged that the global landscape has changed, and that inflation is likely to come to Japan sooner or later, requiring a different approach. The attractive inflation-hedging characteristics of farmland and forestry were repeatedly cited as a factor being given increasing weight by LPs.
ESG was also brought up by almost every Japanese investor that spoke at the conference. This is forming an increasingly important part of Japanese LPs’ investment committee considerations, as with investors the world over, and agriculture is proving itself to be a natural fit.
Beyond the obvious fact that owning agricultural land presents an opportunity to regenerate landscapes and provide secure employment in regional communities that need it, the growing area of carbon and biodiversity credits was also mentioned by several LPs as something they are considering closely.
One interesting anecdote came from Akiyoshi Tanida, deputy general manager of the foreign equity and alternative investment department at Nissay Asset Management, which has made investments into the asset class with Manulife Investment Management.
He said they had paused investments in agriculture during the pandemic, as travel restrictions meant it was impossible to get out and meet managers face-to-face. This seemed to be a crucial factor, as Tanida said that a visit to the US to meet with fund managers left him with the impression that “everyone is in love with farmland”. He said the enthusiasm shown was “inspirational” and the chance to follow that up with a visit to see potential farmland investments in person was a major factor in convincing Nissay to deploy further capital in ag.
This bodes well for asset managers in both Australia and the US, where open borders will allow them to host site visits from potential investors – with Zoom calls perhaps not enough when trying to convince an inquisitive Japanese LP to make its first investments in a new asset class.
Agri Investor’s next event will be the 2022 Australia Forum, to be held on October 6 at the Grand Hyatt in Melbourne. Secure your place now