UBS Global Asset Management has established an own-and-operate farmland investment platform in Australia and New Zealand, contrasting with the firm’s buy-and-lease platform in the US; UBS AgriVest.
“Our model suits local market conditions,” said Trevor Cooke, head of global real estate for APAC at UBS Global Asset Management. “The buy-and-lease model works in the US due to the nature of corporate tenant farming but Australia is characterised by family farmers instead of large corporates, so it is much more aggregated.”
Partnering with local farmland operational advisor Bydand Global Agriculture, UBS will offer two types of segregated mandate to institutional clients depending on their investment objective. It expects demand to come from sovereign wealth funds and other large institutions from Canada, Europe, the Middle East and North Asia with little from the US apart from the odd endowment fund.
The first model is best suited to sovereign wealth funds and investors that are concerned with food security and want to secure a certain amount of produce each year, Cooke told Agri Investor. In this case UBS and Bydand will create an enterprise for the client by identifying land holdings, acquiring and aggregating those holdings and sourcing the operators.
Bydand arranged a similar programme for Qatar Investment Authority in 2009 when it helped to establish Hassad Australia agribusiness for the sovereign wealth fund in a $300 million deal.
The second model is for investors who are more interested in the financial return on their investment, said Cooke. In this case UBS and Bydand will acquire land and combine it with land belonging to existing farmers who want to expand their business. This will create a co-investment whereby investors will have a share in the offtake revenues of the newly aggregated operation.
“A key feature of the market place is the need for customisation to meet institutional investor needs. The more food security-driven investors are focused on cost production, compared to financially motivated investors who want to achieve a financial outcome,” said Cooke.
The minimum mandate size is $200 million to ensure scalability and diversification, according to Tony Eyres, head of Australian farmland operations at UBS Global Asset Management.
“It’s about scale,” he said. “There is a need for consolidation in the Australian agriculture sector to increase overall competitiveness and gain an overall low cost of production. This amount will also enable the investor to have sufficient diversification in their portfolio.”
Investors will take out a contract with UBS, and Bydand will act as sub-advisor on the execution of the mandate. Fees will be “commensurate with the complexity of the mandate” and will be tied to more traditional asset management fees where performance impacts the final fee, said Cooke.
Fee structures have been controversial for previous investors into agriculture; Cooke hopes that the investment platform will help to iron out past concerns by customising arrangements with each client.
“Our view is that there needs to be a normalisation in the agriculture investment industry; the days of ‘2-and-20’ fees in the fund world are long over,” he added. But normalisation will still take some time, he added.