University foundation aims to stoke recovery in farmland donations

University of Illinois Foundation chief investment officer Ellen Ellison tells Agri Investor of hopes donated farmland can constitute part of a 'barbell' ag portfolio complimented by agribusiness investments drawing on the wider institutions’ industry expertise.

The University of Illinois Foundation hopes a September adjustment to its farm management policy will help reverse a sharp decline in alumni donations of farmland over the past dozen years, according to the $1.8 billion institution’s chief investment officer.

In a September statement to the University of Illinois Board of Trustees, President Tim Killeen said the institution was changing the policy guiding management of farmland donated to it by alumni. Killeen explained that, while it had in recent years employed a cash-bid process to find managers for its farms in order to maximize support for initiatives including scholarships and research, the University would now move towards a “best candidate” approach that takes into account a wider array of factors to select farm managers paid a predetermined rate based on local market conditions.

Factors to be considered included potential farmers’ experience and records of land stewardship, educational backgrounds and “whether their use of modern agricultural technology and machinery best fits the parcel of land that is available.”

“Our new approach aligns more closely with farming practices and culture in Illinois, which emphasizes building strong relationships and careful stewardship of our fertile cropland,” Killeen said. “Our goal is to integrate community values with best management practices to best serve the interests of our donors, to achieve the best long-term value of the endowments, to steward the land responsibly and to support Illinois agriculture by our example.”

An evolving approach

Kevin Noland, the Foundation’s assistant vice-president for real property and financial services, told Agri Investor that its previous policy of accepting the highest bid for management contracts constituted a “12-year aberration from standard practices in farm management in the Midwest.”

After receiving its first gift of farmland in 1923, the University of Illinois, its Foundation and Endowment have been gifted a combined portfolio of 17,000 acres of mostly corn and soy farmland spread across 40 properties in Central Illinois, according to Noland.

He said that, although Endowment farmland had traditionally been managed in a portfolio separate from farmland held by the Foundation, over the past five years each has been included in a pooled asset program overseen by the Foundation’s chief investment officer, Ellen Ellison. Up until Ellison’s arrival about five years ago, Noland said, gifts of farmland would often be sold in instances where the donor had not explicitly restricted such sales.

“We’ve really taken a different look at that and said ‘Let’s hold this asset, let’s look for opportunities to sell, not just make this knee-jerk reaction where we sell everything that has no restriction against it’,” Noland said.

Ellison, who became the Foundation’s CIO in 2012 after a five-year stint as executive director of investments at the University of Miami, told Agri Investor that, in her effort to establish a core competency for the Foundation, ag was an obvious choice.

Based on feedback from a cross-disciplinary Farmland Advisory Council made up of representatives from across the University’s foundation and faculty and elsewhere, Ellison said it was clear that the institution’s reputation as a responsible steward of gifted farmland had been damaged by the policy of awarding farm management contracts to the highest bidder.

“We have been working for the past five years to get this changed,” Ellison said. “You can’t statistically prove, beyond a shadow of a doubt, that the reason gifts dropped by 80 percent was because of this, although we think it’s a reasonable inference based on the verbal feedback we got.”

Given that some alumni do not notify the University of plans to donate farmland and discussions with others about such gifts can, in some instances, stretch over as long as two decades, Ellison said it will take some time to know how successful the University’s switch to a “best candidate” farm management program has been.

Ellison said that, while she does expect that “a good amount” of the testamentary gifts given to the University will come in the form of farmland in the future as its reputation improves among the farming community, the fact that alumni often look to time such donations to coincide with market highs means it may take even longer to judge the wisdom of the change, and that the 12-year period described by Noland as an “aberration” was particularly ill-timed.

“Prices have come off a bit since 2012, so we may have to wait for the next uptick in Midwestern corn and soy prices to see more gifts, ” Ellison said. “This is a 30-year asset class, which is fine by us because the endowment is a perpetuity and we’ve got time on our side.”

The other side of the barbell

In the meantime, Ellison explained that she is exploring ways to expand the Foundation’s ag exposure into other areas including permanent crops, aquaculture and protein investments in the developing world. To date, the Foundation has made $57 million in agribusiness investments with two managers that constitute 3.3 percent of its overall portfolio, according to Ellison.

Ellison declined to identify the managers beyond describing the commitments as having been $20 million to a North America-focused agribusiness manager with a significant co-investment component; $25 million to a Latin America-focused manager offering some co-investment opportunities and a $2 million investment in a fund of funds with some exposure to African agriculture.

“Let’s hold this asset, let’s look for opportunities to sell, not just make this knee-jerk reaction where we sell everything that has no restriction against it”
Kevin Noland, University of Illinois Foundation

“We want the barbell of having these gifts of farmland that we’re going to manage for yield on an ongoing basis over the long-term,” Ellison said. Adding that, while she would not rule out selling any farmland granted to the University by its alumni, it would not be the default strategy, as is the case for many institutions.

The Foundation will consider making further commitments of between $20 million and $30 million to agribusiness funds with managers capable of offering long-term, collaborative arrangements, Ellison said. Given that her institution has just 45 managers across all asset classes, Ellison said it is looking to add only a “few” relationships with managers active in agriculture. “We’re very serious about developing this separate pool of, you could call it, enhanced yield, enhanced income-producing farmland, and managing that well. Right now, it’s managed externally and we’ve been very happy with the external farm manager. The other side of that barbell is things that are very, very different. We’re very interested in farmland that has double planting seasons; things that are very different from Central Illinois.”

Here, too, the University of Illinois’s broad network and bench of agricultural expertise is an asset, according to Ellison, who said it puts her and her team in a position to pick the best managers, confident in their view of the market.

“Don’t call us, we’ll call you,” she said.