GLOBALLY, agriculture has attracted greater levels of interest from institutional investors in recent years, as they seek to diversify their portfolios and position themselves to take advantage of growing demand for food arising from population growth and increased consumption by the emerging middle classes in developing countries.
That’s the view of financial analyst, Preqin, who says a number of investors have sought to gain access to the agriculture sector through investment in farmland, agricultural businesses or companies looking to generate innovative technological solutions to agricultural problems (aka AgTech).
In a recent report on global ag investment trends, Preqin took a look at the growing market of unlisted funds providing investors with access to the sector, fundraising, assets under management (AUM) and institutional investor interest.
Preqin estimates that more than 100 unlisted agriculture/farmland-focused funds have closed since 2006, raising about $22 billion in aggregate capital.
“Fundraising has been particularly strong recently, with ten 10 funds closed in 2015 securing an aggregate $3.9 billion in investor capital, close to the record $4 billion seen in 2014,” the report said.
As a result, assets under management in agriculture worldwide currently stands at $22.2 billion.
“Developments have not been solely positive for the agriculture/farmland managers; these managers have set ambitious targets for fundraising and have tended to come in below target in recent years,” Preqin said.
“Nevertheless, there remains a strong pipeline of funds coming to market, with 48 vehicles targeting $12.9 billion in capital, and investors continue to express an interest in the farm sector, with 26pc of natural resources investors investing in agriculture/farmland.”
Agriculture/farmland fundraising as a proportion of all natural resources fundraising peaked at 7.4pc in both 2007 and 2012, and stood at 5.4pc in 2015, the report said.
“A substantial proportion of global agriculture/farmland investment is still directed towards North America. Among the 77 agriculture/ farmland-focused funds closed since 2011, 25 with a primary focus on North America have raised $5.7 billion, or 35pc of total capital.”
Significant sums were also raised by diversified multi-regional funds, which seek to spread crop and investment risk by investing across multiple geographies. Seven funds identified by Preqin raised $4.4 billion in this segment.
Outside North America, the largest sums of capital have been raised by funds with a primary focus on Asia ($1.8 billion) and Australasia ($1.2 billion).
“As the sector is still relatively new and growing, fund managers are having difficulty attracting institutional capital; agriculture/farmland-focused funds have typically closed below their initial fundraising target in recent years, with the average fund closed in 2012 securing 77pc of its target, rising to 98pc in 2015,” the report said.
Nevertheless, some funds had been oversubscribed and closed significantly above target:
The largest fund manager by capital raised for unlisted agriculture/farmland funds in the last 10 years is TIAA Asset Management, the asset management arm of the Teachers Insurance and Annuity Association.
TIAA Asset Management raised $3 billion for TIAA-CREF Global Agriculture II in July 2015, exceeding its initial $2.5 billion target. The fund will invest in high quality farmland across multiple crops and regions, including the US, Australia, Brazil, Chile and New Zealand.
This made TIAA the world’s largest agriculture/farmland fund closed in the last 10 years, ahead of its predecessor fund, TIAA-CREF Global Agriculture, which closed in May 2012 on $2 billion.
Fundraising has slowed in 2016 so far, Preqin says, with five funds raising approximately $600 million in aggregate capital. However, the pipeline for agriculture/farmland focused funds is strong, with 48 funds in market, targeting $12.8 billion in aggregate capital.
Sixteen of these primarily focus on North America, targeting $3.5 billion in aggregate capital. Outside North America, the largest amount of capital is being sought for Africa, with five funds targeting $2.6 billion.
“While many agriculture/farmland-focused funds have a broader geographical remit than other private equity vehicles, due to the availability of agricultural opportunities, fund managers running these vehicles continue to be concentrated in the developed markets of North America (38pc of managers) and Europe (26pc).
Source: Preqin report.