Warakirri Asset Management launches open-ended Australian cropping fund

Warakirri aims to raise A$500m-A$750m in equity to build a diversified portfolio of broadacre cropping assets, managing director Jim McKay says.

Warakirri Asset Management has launched a new open-ended fund targeting institutional investors, the Sustainable Broadacre Cropping Strategy.

Warakirri did not publicly state fundraising targets, but managing director Jim McKay told Agri Investor the plan is for the fund to eventually own a diversified portfolio of assets across Australia’s main cropping regions which could be worth between A$750 million ($475 million; €450 million) and A$1 billion. As such, the firm would expect to raise A$500 million-A$750 million in equity for the fund to facilitate this.

The firm expects to take two to three years to establish its initial portfolio, with optimization and expansion to follow.

McKay said Warakirri was launching the strategy following the conclusion of an exclusive institutional mandate earlier this year, which now freed the asset manager to raise a new collective investment vehicle. McKay declined to comment on the identity of this investor, but Agri Investor understands the mandate in question was the Daybreak Cropping portfolio, management of which transferred to a subsidiary of PSP Investments earlier in 2023.

The fund will be open-ended with structured liquidity events for investors who wish to exit partially or in full at given points during its life.

“To me, it does make more sense in agriculture [to use an evergreen structure] – it creates better alignment,” McKay said. “It’s also an evolution generally in asset classes that have had liquidity tie-ups – these evergreen structures seem more preferred these days than they were a decade ago.

“Ultimately it comes down to the needs of our investors and how best we align the structure of the portfolio to meet their needs, and balancing that with the need to ensure you have sufficient time to deliver on the investment mandate.”

The fund will target double-digit returns, in line with a “9-12 percent range” seen historically in the sector, McKay said, comprising roughly half operating return and half capital growth.

With farmland prices in Australia at near-record highs (despite recent signs that growth in values is cooling) and interest rates still relatively higher than they have been for many years, McKay said Warakirri’s breadth of coverage across a wide range of climatic regions in Australia ensured it looks at “both absolute and relative value” when it comes to acquiring assets.

“When we cover this amount of territory, we can always find good value to purchase – and noting that it is operational value over a 10-year period that’s really going to create value. Our fundamental thinking is if you drive economic returns, capital values will follow. Given we’ve operated in pretty much all the major grain regions of the country, we’ve got a really good feel for what we can execute at a great level in those different regions.”

On the fund’s name – the Sustainable Broadacre Cropping Strategy – McKay said farming sustainably was “part and parcel of being really great operators”, arguing it is something Warakirri has been doing for some time anyway.

But he acknowledged these issues are more at front of mind for some investors than in the past, such that the portfolio will pursue carbon-reduction strategies on the way to achieving net-zero emissions.

“There are two key drivers for this. There is a shortage of food globally and we have reached peak farmland, therefore we have to maximize productivity to deliver better outcomes and feed the world. And people want to do that while also reducing their carbon footprint,” McKay said.

Warakirri has more than A$3 billion in assets under management, and manages more than 200,000 ha of Australian agricultural land across almost 70 property aggregations.

It most recently launched two funds targeted at wholesale investors in the last two years: the Warakirri Farmland Fund, which launched in 2021, and the Warakirri Diversified Agriculture Fund, launched a year earlier in 2020. The two vehicles collectively have raised more than A$250 million from a range of Australian and foreign wholesale investors and a European pension fund.