Agri Investor - Why agri, why now?
By Al Barbarino
April 5, 2017
Agri investments mix the old and the new, offering safety through farmland investments on one hand while fulfilling ESG and IRR requirements through the latest agribusinesses
It was an "eye-opener" when Chrystalle Anstett, a managing director with fund placement agent Eaton Partners, watched as one of the agribusiness funds recently reached its first close in just two short months.
"That first close was faster than I’ve ever seen a first close happen in the seven years I’ve been with the firm," Anstett said.
The rapid fundraising is just one example amid a confluence of factors suggesting that the time to invest in agri may be now. Agri has for a long time offered portfolio diversification and a steady inflation hedge through farmland, but today it offers additional value by fulfilling ESG pledges in the face of shifting consumer demands and even producing private equity-like returns through agribusiness investments.
Our readership is on board. A recent Agri Investor poll showed that a majority of our readers anticipate investing more into the industry in 2017 than they did in 2016.
That sentiment is reflective of broader trends in private pointing to agri as an alternative of choice. For instance, a survey of 240 of Blackrock’s global institutional clients, representing $8 trillion in assets, recently found that 58 percent expected to increase allocations to real assets, including infrastructure, commodities, timber and farmland.
As agri evolves, it offers special appeal, blending proven farmland investments with new and exciting agribusinesses.
Conventional farmland continues to fill a need at the lower end of the return spectrum, providing long-term steady returns and inflation protection. While fund manager AgIS Capital recently noted in a report that it is seeking agribusiness over farmland plays, Jeff Conrad, co-founder and president of the firm, told Agri Investor that farmland remains a "good bet" on a relative basis.
"Compare it to an equity market that has become very expensive on a price-to-forward earning basis, a fixed income market looking at rising interest rates, a timber market that seems lifeless, and a PE market where buy-out multiples have greatly increased," he said.
Agribusinesses meanwhile can yield PE-style IRRs in the ballpark of 25 percent, Anstett noted. These businesses in many instances offer investors a piece of potentially industry-changing agtech, from those focused on fertilizers to drones to genetics.
They are also trading much more cheaply than comparable industries. "Entry multiples elsewhere in PE have gotten very expensive, in the double-digits to high-double-digits for buyouts, while agribusiness are in the low single-digits," Anstett said.
Institutional investors are also more interested in ESG principles than ever before. CalPERS and CalSTRS are among the pensions who have declared a need to beef up their ESG allocations. Agribusinesses can fill this role through organic, non-GMO and themes relating to food traceability that are increasingly important to consumers, pensioners and, in turn, fund managers.
In advocating for investments into agri platforms that go beyond the rental model and integrate the supply chain, AgIS Capital noted in its report that "the additional coordination enables such firms to secure supply, control quality, ensure food safety, and swiftly respond to changing regulations." Its an approach that more managers are bound to adopt.
"I believe the sector is in the early stage of maturing, as we see managers becoming more sophisticated and institutional in quality," Conrad said.
On a broader basis, we have the glaring global question, often talked about in agriculture circles: how will the world feed 9.1 billion come 2050? The agribusiness and technologies that are growing at a blistering rate from new irrigation systems to plant genetics, drones, fertilizers and feeds may hold the answer. In the meantime, farmland continues to play a key role in any portfolio for those wishing to play it safe.