Pension funds join forces to invest in farmland
Major asset managers, cowed by the cost, the risk and the controversy involved in investing in farmland, are joining forces to increase investment in the historically under-capitalised sector.
In one example, Swiss fund of funds Adveq is in talks with three European pension funds, a private family and a Korean asset manager to buy farmland, in which it will act as the originator and lead investor.
Last year one of the world's largest institutional investors, TIAA-CREF, partnered with pension funds including British Colombia Investment Management Corporation and AP2 to create a $2 billion investment vehicle to buy farmland.
The new approach is likely to attract significant amounts of money from pension funds and other institutional investors into farmland, a sector in which they are reluctant to go it alone.
"We see agriculture and farmland as an asset class that's still being shaped," said Biff Ourso, director and portfolio manager of farmland investments at U.S. asset manager TIAA-CREF.
"It (working together) creates alignment for investors, economies of scale, cost-sharing and the transparency that a lot of investors want today," he added.
Adveq expects three institutional investor club deals to close in the next 12 months, each between $200 million and $400 million in size.
Investors are attracted into farmland by the rising global demand for food and a low correlation of agricultural land prices with traditional asset classes.
Pension funds have been cautious in how they approach the sector, however, because charities worldwide have voiced concern that large-scale land grabs by foreign investors could push up food prices, push farmers off the land and increase hunger.
"Agriculture is a very sensitive subject for two reasons, one is the fundamental human right for food in a food-insecure world, and secondly land is sacred to every country. To sell land in some societies is not acceptable," said independent consultant Mahendra Shah, member of a panel advising Adveq on agricultural investment strategy.
"My personal view is these pension funds are afraid to go into the field alone, and they want to spread their bet or their risk by having partners join them."
Fledgling Asset Class
By working together, pension funds aim to create bespoke investment vehicles in a fledgling asset class that meet requirements for responsible investment in a sensitive area.
Research by Macquarie in 2012 showed institutional investment at a meagre $30 billion to $40 billion out of a total global value for farmland of $8.4 trillion.
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