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UK pension interest grows despite consultant advice

The sale of The Co-operative's farm business exposed increasing demand among the UK pension industry.

The sale of The Co-operative’s farm business to the Wellcome Trust and the interest it received from the UK pension industry shows an increasing appetite for agriculture at UK-based institutions, said Dan Hough, managing partner at Australian agri manager Gunn Agri Partners.

It is understood that at least one consortium of UK pension funds bid for the Co-op farm business, according to a source close to the situation. The Wellcome Trust bought the business for £249 million ($420 million; €314 million) in August.

“The Co-op farm deal was a great proxy for interest out of the UK pension market,” Hough told delegates at the Agriculture Investment Summit in London last week. “I was surprised by the number of UK consortiums, including UK pensions that threw their hat in the ring. It’s a great thing for the farmland sector as it means that they are looking at agriculture as an asset class; something they weren’t doing three years ago.”

But UK pension fund interest is still not country-wide and consultants are still playing a part in this, argued speakers at the summit.

Leicestershire County Council Pension Fund and Wiltshire Country Council were advised against investing in the asset class by their consultant at Hymans Robertson, who cited the asset class’s lack of long term potential, investment managers at the funds told Agri Investor recently. Hymans Robertson had not responded to requests for comment when Agri Investor went to press.

The consultancy industry is slowing coming around to the sector however, argued Griff Williams, investment director at Milltrust.

“It is going to require investment on the part of consultants to get some understanding of the asset class and they are starting to do this; I am having more and more meetings with consultancy firms,” he told delegates at the Agriculture Investment Summit. “We saw this with infrastructure and hedge funds – it’s an ongoing process. I also think the global financial crisis has played a part in helping to focus the minds of UK pension managers on finding attractive yields from real assets such as agri.”

Other UK pension funds have failed to find suitable investment opportunities in agriculture despite dedicating internal resources to the asset class such as Lothian Pension Fund in Edinburgh. The manager responsible for this area has now moved his focus elsewhere, according to his colleague Andrew Imrie, portfolio manager.

Williams and Hough compared interest from UK pension funds to the situation in the US where agriculture has been a much longer standing investment destination.

Williams said that while UK funds clearly had more interest in agri than previously, it was also worth mentioning that “UK pension funds do not have quite the same size of portfolios as their US counterparts in agri”. And Hough indicated that the UK is running behind its Northern European counterparts.

“Northern Europe is certainly leading the way in the European region,” he said. “The US pension funds are now starting to look further afield than their own backyard and are investing into Latin America and Australasia.”