TRSL backs PGIM’s open-ended US ag fund with $50m

Meeting materials describe discounted management fees in perpetuity for LPs committing to PGIM’s US Agriculture Fund at or near February 20.

The Teachers’ Retirement System of Louisiana committed $50 million to a PGIM vehicle as a joint venture – the 2018-vintage fund is currently seeking $200 million as part its transition to an open-ended structure.

The investment committee of the $26.5 billion pension approved the commitment to the PGIM US Agriculture Fund at an early February meeting. TRSL declined to comment.

According to TRSL meeting documents provided to Agri Investor, the fund was established through a recapitalization of Prudential Agricultural Investments, a joint venture launched in late 2018 with a US pension plan. As part of a re-structuring into an open-ended fund, the material explains, the founding investor contributed an additional $300 million to the vehicle in an August close that also included a $100 million commitment from a new investor.

PGIM US Agriculture Fund now seeks an additional $200 million to support a $1 billion strategy targeting net returns of 7-9 percent over a complete market cycle through direct operation of 20-25 permanent planting and row crop properties.

According to TRSL meeting materials, the vehicle offers quarterly distributions and tiered management fees of 120 basis points annually on the first $100 million; 110 basis points on the second $100 million; 100 basis points on the third $100 million; and 90 basis points on any additional capital. Prospective investors that commit capital at or near February 20, are offered a 10-basis point discount on management fees in perpetuity, according to the materials.

PGIM did not return messages seeking further detail.

According to the presentation, the PGIM US Agriculture Fund currently contains farmland assets with a net asset value of $427 million. Geographically, 45 percent of the properties are in California, with the remainder distributed among the Delta, Southeast, Corn Belt and Pacific Northwest regions.

Aside from its 36 percent allocation to row crops that include organic corn, oats and alfalfa, processed citrus accounts for the largest portion of its portfolio of any single crop at 12.5 percent.

PGIM vice-president Juan David Castro-Anzola discussed challenges facing US citrus producers during a NCREIF webinar earlier this month. Castro-Anzola explained that prevalence of citrus greening, a bacteria that harms crop development and quality, has continued to be a factor in the US Southeast.

“In most of the cases, there is a significant amount of fruit-drop before the harvest season,” said Castro-Anzola, who is based in Orlando, Florida, according to his LinkedIn profile.

“It’s something that we are continuing to see this year, so productivity levels are impacted again. We are seeing prices that are a little bit better than last year, but still, yields are the main factor driving lower returns for this commodity segment.”

Castro-Anzola also highlighted broader impact of recent supply chain bottlenecks and an outlook that suggests high inputs cost, rising minimum wages and decreasing availability of transportation in key states like California.

“As we look forward, that’s something that we’re going to have to get used to; these higher prices, at least at the farm level,” Castro-Anzola said. “This is something that is definitely still in our mind: how do we handle and control costs for production of commodities in different sectors?”