TPG affiliate brings in partner firms for dislocation strategy – exclusive

TPG Sixth Street Partners has brought in at least two agriculture-focused firms to carry out a strategy focused on citrus and water-related dislocation and large-scale organics, Agri Investor understands.

According to market sources, TSSP has partnered with New York-headquartered asset manager SLM Partners and Midwestern BioAg, a biologicals-focused farm management consultancy headquartered in Madison, Wisconsin, which will both carry out portions of TSSP’s strategy.

The strategy relates to the firm’s debut agriculture vehicle, TSSP Agriculture Partners Fund, which Agri Investor revealed had raised at least $350 million as at January 2020, attracting commitments from a range of US pension funds.

Sixth Street plans to target high single digit internal rates of return through a strategy that combines farmland acquisitions in organic grains and niche permanent crops, with investments into related areas such as water infrastructure, grain silos and processing infrastructure, sources confirmed. Though the fund’s focus is largely domestic, a source familiar with Sixth Street’s strategy said it does have scope to pursue investments outside the US.

It was reported in late January that Sixth Street, the special situations and credit platform of Fort Worth, Texas-headquartered TPG, had started informing LPs of plans to formally separate the two organizations, which, according to a letter from TPG co-founder James Coulter cited in the story, already “operate mostly autonomously.”

Agri Investor‘s source said it was their understanding that while Sixth Street’s “special situations” label initially referred to distressed investments, as the partnership with TPG developed, the unit became a catch all for investments that didn’t fit elsewhere in the business.

“Chad and agriculture resided there [under the special situations label] because there wasn’t any other appropriate division for it to reside in, not to say, because they were in special situations [and] were only looking at distressed opportunities,” the source said in reference to Chad Hutchinson, the Sixth Street executive multiple sources have said is leading the TAP strategy.

“They believe, given current macro factors, there will increasingly be a pipeline of distressed situations they will be looking at, but it isn’t necessarily a distressed or special situations strategy, thematically.”

Sixth Street plans to focus on situations where a catalyst – including events such as the introduction of the Sustainable Groundwater Management Act in California and citrus greening disease in Florida – has led to dislocations that create opportunities to invest, multiple sources confirmed.

Sources also confirmed to Agri Investor that Sixth Street has existing partnerships in place with TAP fund partners SLM and MBA.

The firm has been working with SLM to manage Gunsmoke Farms, sources said, which is a 34,000-acre South Dakota property that TPG purchased in August 2017, reportedly for $37.5 million. US food company General Mills announced in March 2018 it had entered into an agreement to support conversion of Gunsmoke to production of organic wheat and other crops by 2020, and to use wheat grown on the farm for its products.

General Mills also announced that Midwestern BioAg would provide training to Gunsmoke’s operators in regenerative practices including cover cropping, crop rotation and no-till production.

Sixth Street is actively recruiting investment professionals with agriculture experience, Agri Investor‘s source said, which they added could emerge as a key factor in determining how successful the firm’s entry into agriculture is likely to be.

Whereas the expertise required to introduce an impact investment overlay on top of a growth equity strategy is relatively widespread, the source explained, firms interested in following Sixth Street’s entry into agriculture will likely be constrained by the small market for relevant personnel.

“Where is that backlog of people in ag, broadly?” the source asked rhetorically. “There just isn’t a big universe.”

Sixth Street declined to comment. SLM and MBA did not return messages seeking further detail.