Hedge fund firms often take their names from the natural
environment: Bridgewater Associates, Lone Pine Capital and
BlueMountain Capital are just a few examples. Last fall
BlueMountain alumnus David Nicola went a step further by
starting Blackdirt Capital, a specialist in
sustainable agriculture that aims to reap robust risk-adjusted
returns. Blackdirts first offering, the Gratitude
Farmland Fund, launched in August with $40 million in seed
capital from partner Gratitude Railroad.
Blackdirt is named after the Black Dirt Region, a stretch of
New York State and New Jersey renowned for its rich soil. The
Farmland Fund focuses on buying and developing undervalued
agricultural land in low-income areas of the eastern U.S. (The
water risk is too great, he says, in the Midwest and
California, home to much of the countrys meat and dairy
Nicolas production system centers on growing
grass and introducing cattle to graze on it. The end result:
premium beef and milk products known on restaurant menus and in
grocery stores as organic grass-fed.
Its sort of a hedge fund approach to thinking
about sustainable agriculture, says Nicola, 36, who is
Stamford, Connecticutbased Blackdirts lone
employee. In a domestic market reliant on beef and dairy, the
current model of using land to grow crops such as corn is less
sustainable and less profitable, he argues, so hes
creating an alternative by cheaply and easily maintaining
organic soil: Thats how my brain operates, thanks
to being both a tree hugger and hedge fund portfolio
Nicola has always been environmentally conscious. The
Chatham, New Jersey, native studied natural resources at
Cornell Universitys College of Agriculture and Life
Sciences; after graduation in 2002 he moved into an investment
banking analyst program at Citigroup in New York, where he
concentrated on basic industries like metals and mining.
From 2003 to 2009 at BlueMountain, Nicola managed index and
fixed-income arbitrage for the $22 billion, New Yorkbased
credit-focused alternative-investment firm. That job taught him
how to invest, identify opportunities and manage risk, he
Nicola has spent most of the past six years figuring out how
to combine his investment experience with his passion for
environmental conservation. During that time he earned an MBA
in energy and environment from Duke Universitys Fuqua
School of Business and did a two-year stint at Armonia, a
Greenwich, Connecticutbased family office, managing
investments in sustainable farming and other environmentally
Nicola, who calls agriculture an underinvested sector, sees
plenty of upside for his new fund. Last year was the biggest
ever for the organic food industry, according to the
Washington-based Organic Trade Association, with Americans
spending more than $42 billion on such products. The organic
industry grew 10.8 percent in 2015, while the overall food
market expanded by only 3 percent. Consumption continues to
outpace production. Still, organics comprised less than 5
percent of total food sales in the U.S., where less than 1
percent of cropland is devoted to organic agriculture.
As an asset class, farmland has proven to be a good
long-term investment. From December 1991 through September
2015, the NCREIF Farmland Index posted a 12.10
percent average annual return, versus 9.26 percent for the Russell 3000 Index.
Conventional-agriculture funds are experimenting with
organic and other sustainable techniques, but the sector is
small probably less than $100 million, Nicola says.
Attracting large institutions and scaling the Farmland
Funds system is part of his long-range plan.
Nicola describes Gratitude Railroad, founded by Howard
Fischer and Eric Jacobsen, as an impact-focused community of
traditional investors with the resources to fund young managers
who have an impact skill set but may lack the capacity to build
a fund or an investment product themselves. Gratitude is the
majority general partner of the Farmland Fund; Nicola plans to
grow the portfolio by raising more capital from high-net-worth
individuals, family offices and other investors.
The opportunity for a $250 million to $500 million
fund is there, probably in year two or year three, says
the Blackdirt founder, who concedes that institutional
investors often overlook small vehicles like his in favor of
those with track records: The opportunity is much larger
than the fund size.
Financial and ecological value are connected for Nicola, who
doesnt consider himself an impact investor. If
youre not paying attention to the environment and social
factors in an agriculture portfolio, particularly if
youre an institutional investor with a 30- to 50-year
time horizon, he says, youre setting yourself
up for underperformance.
Follow Jen Werner on Twitter at @jenwernerr.