I was recently at a grouping of large institutional investors where an audience poll revealed that agriculture was more attractive as an investment than emerging market debt or even emerging market equities. Agriculture? Really? Actually, agriculture was also listed by the 40 or so pensions and sovereigns in the room as having the best return opportunities among the tangible asset classes over the coming decade; higher than infrastructure, mining, and even commodities. Agriculture?! But how many pension funds are actually investing in farms or seeds? Not many, right?
Wrong. As it happens, a growing number of institutional investors are quite serious about the asset class. Here’s Arleen Jacobius reporting:
“As an increasing number of institutional investors add or beef up real asset portfolios, farmland — once considered an out-of-the-way corner of the investment landscape — is gaining capital......Among those investing: The Iowa Public Employees' Retirement System...City of Alexandria (Va.) Fire and Police Officers Pension Plan...the Oregon Investment Council...the Los Angeles City Employees' Retirement System...the Orange County (Calif.) Employees Retirement System are among institutions that included farmland as part of newly adopted allocations to real assets...TIAA-CREF has been investing in farmland since 2007. The firm has a $2.5 billion farmland portfolio that invests in North and South America, Australia and Central and Eastern Europe.”
Apparently, agriculture, like infrastructure, has become a hot asset class and an important component of institutional portfolios. Why?
Depending on the type of investment, it can have inflation protection and low correlations with other asset classes, which is nice in the current volatile environment. In addition, locking in a steady 7 to 10 percent return is a lot more attractive today than it was in the past.
And that’s only part of the story, as there are also some pretty big opportunities on the upside as well. Innovation in the food and agriculture space has been remarkable over the past decade. For example, the sale of organic and natural products reached close to $80 billion in 2010, and the dramatic rise to prominence of Whole Foods Markets is a telling example of what’s possible in this “boring” space. And, as economic and demographic changes take place around the world, innovation will have to continue, which will create more investment opportunities.
Finally, food security is also undoubtedly driving some of the momentum, which is probably why sovereign funds like this one or this fund exist. And this may help explain investments such as this one? Or why this fund is interested in this country?
Whatever the case, agriculture is becoming an increasingly popular asset class for institutional investors. So I’m paying attention to it. And so should you.
