Heightened Market Demand for Agricultural Investments

Extreme monetary policy across much of the developed world has distorted many asset classes. The stretched valuations of most stocks and bonds have propelled a shift into alternative assets as institutional investors search for yields in a world where the return is scarce. Concurrently, many investors are looking for ways to insulate their portfolios from the certain increased levels of inflation. Accordingly, agriculture assets have attracted greater investor demand as institutions seek to diversify their portfolios from what can best be described as a nervous and toppy market. While agriculture isn’t necessarily insulated from a scenario in which both the bond and stock markets are falling, interest in the sector remains strong due to some key attributes which this sector provides investors, including strong long-term fundamentals, attractive returns, and capital preservation. According to Jose Minaya, President of the new $100bn real assets division of TIAA Global Asset Management, “in general, real assets are not correlated to the other assets in an investor’s portfolio.” He emphasizes that “adding agriculture or timber, for instance, improves a portfolio’s efficiency frontier and Sharpe ratio,” thereby improving diversification and improving risk-adjusted returns.

Over the past ten years, the agriculture sector has continued to transform into an institutional asset class with increased demand from corporates, individuals and institutional investors alike. Within the industry, however, demand waxes and wanes alongside investor preferences. Investment capital which had recently flowed across the complete spectrum – from extremely liquid strategies (e.g., listed stocks, mutual funds, and commodity futures trading funds) to very illiquid strategy (eg, farmland, private equity, co-investments, direct-investments and private debt) – currently tends to flow more freely to the illiquid end of the spectrum, or to trade finance strategies, as long-term investors search for yield, capital appreciation, and inflation protection. Over the long-term, both liquid and illiquid strategy will be sought.

Source of Demand

Pension funds, both public and private, across the developed world have been the largest allocators of capital in the sector. Frequently, their strategy has focused on investing in substantial farmland funds, such as TIAA CREF, that seek to build diversified farmland portfolios with a mix of row crops and permanent crops in defined geographies. The U.S., Australia, New Zealand and Brazil had historically been the most sought-after geographies. Endowments, most typically those from U.S. Universities, have followed a comparable path.