Griff Williams, Chief Executive Officer, Milltrust Agricultural Investments  October 2017

There is no doubting the strong interest in agriculture investing among pension funds today. This has increased along with appetite for all ‘real assets’ as allocators seek diversification and of low yields. Yet, while allocations have increased, we observe that many interested investors do continue to hold back, with meaningful obstacles inhibiting them from entering the field.

The first is unfamiliarity. Investigating new terrain requires education, not just for resource-constrained investment teams but also for trustees. This is a challenge that specialist agricultural asset managers can help to tackle, working proactively on education and knowledge transfer.

The second is more critical. There have been failures in product construction, with managers offering agriculture in structures that do not, from a pension fund perspective, deliver the most valuable characteristics of this asset class.

For example, a number of agriculture funds focus far more on capital gains than income, purchasing assets that remain cashflow-negative for years in pursuit of a 20% or 30% IRR. That is essentially private equity. Agriculture inherently presents allocators with the question: “where should we put this?” Even if the investor has a clear vision, it may not fit with what’s on offer.

Increasingly, and we think correctly, allocators are seeing farmland funds as a diversifying addition to their real estate exposure. On that basis, a degree of predictable income yield is important, as is the achievement of solid risk-adjusted capital gains on acquisitions and development capex.

These questions also shape our own strategy. Having spent 25 years in the institutional investment space, including a period at one of the UK’s larger pension funds (Railpen), I was committed to delivering what I believed investors want from assets like this: strong income, relatively low volatility and an investment horizon aligned to their long-run liability profile, with an open-ended structure to avoid forced-selling.