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Pyers Griffith, Senior Investment Advisor at Milltrust International

Why are investors deploying agriculture strategies in these less developed private equity markets Senior Investment Advisor at Milltrust International, Pyers Griffith, speaks with me below about why they are co-investing with Tristo Investimentos in Brazil and looking to agriculture in Paraguay, Peru, Argentina and Bolivia.

LPEJ: Give us a brief background on your role at Milltrust.

PG: Milltrust is an asset manager based in London and Singapore. The initial launch was in listed products for the emerging markets. The cornerstone is a platform EMMA that effectively enables institutional investors to model their exposure across the emerging markets in a safe and cost efficient way. EMMA has now adopted some of the best managers in South America, Brazil, India, China and ASEAN.

I’ve been based in Latin America since 1991 and have lived in Mexico, Lima and Argentina. Before Milltrust I was with HSBC on the corporate finance and private equity side. After this, with Altima Partners I became involved in an agriculture private equity opportunity in Argentina, which turned into a regional focus. I partnered with Milltrust about a year ago, jointly launching a separate platform to invest in agriculture in South America as part of a global portfolio called the Milltrust Agricultural Investments MAI.

LPEJ: How would you say your investment platform differentiates you from other firms

PG: Actually we will invest through a segregated portfolio company as opposed to a fund. Investors can come into the pool with a diversified spread of investments across projects or they can specify the individual projects they want. Some may prefer to go into one land project as opposed to another, or go into say agricultural inputs or logistics rather than primary production. The first meaningful vintage of agriculture PE investment in the region took place between 2005 and 2011. This vintage experimented with a centralized, industrialized model. We learned that this model is not effective in agricultural primary production. So the second vintage will be different and we are confident that our model is the best for our region. We are finding fundraising difficult though there is definitely interest. We are conscious of the fact that we are early in the resource cycle and it will take time to build confidence with institutional investors looking to enter the agriculture space, as they must inevitably at some stage.

LPEJ: How does your firm evaluate opportunities in Latin America and what are some of the themes you are pursuing

PG: During this next stage Milltrust will add a focus on real assets, as a hedge against inflation and volatility. Within that we are pursuing the core theme of global demographics and how to meet the basic needs of a growing population.

This is essentially a food security focus. In Latin America we are involved in four regions: the north of Brazil, Uruguay (Salto), Paraguay (Chaco) and Peru (Olmos). They are typically brownfield opportunities which are permitted and compliant in terms of environmental standards. Our business model derives from our experience with my first agriculture investment in South America. MAI also provides exposure to some unique agricultural investments in Australasia.

LPEJ: What is your strategy for maximizing efficiency and obtaining an exit from your agriculture investments

PG: As asset and portfolio managers, we will partner with local sponsors who effectively act as co-managers with us. We are absolutely aligned from the outset. These local sponsors develop the operating model and optimize efficiency. We have grown a portfolio that is coherent and diversified across geography and crops. We go in with a seven to 10 year exit horizon. Our task during the first three to five years is to bring the land up to full production and to maximize cash yield. Each project is scalable from $10 million to over $70 million in equity. In every case we see, under a reasonable set of assumptions, a return of 20 percent IRR. The areas where we are based are beneficiaries of improved infrastructure and government policy.

We only go to countries and regions that are actively promoting foreign investment in the agriculture sector. In the case of Brazil we’ve partnered with a high quality local partner who has taken the lead with 51 percent and owns the land and has invited us in to be a co-investor. Brazil is the only case where we are in the minority, though in this case we are happy to do so. Our partner is an investment advisor, Tristo Investimentos. They are big into the coffee trade with a very strong affiliation with the UK. We met in London and this is a very good partner for us. We are looking at investing in any stage of the value chain as a compliment to land ownership. The exit model is less predictable in this sector, so we only invest in assets with high prospective cash yield and have programmed a lengthy exit period of three years.

LPEJ: Some of the smaller, less developed markets can be difficult for some investors to go into. In your view, right now where are some of the off the radar opportunities in Latin American agriculture

PG: Paraguay is interesting and our timing is good there. Peru is compelling, even if it is not perceived to be a traditional agriculture market. It’s high tech drip irrigation very exciting stuff. We are looking at opportunities in Bolivia. And in Argentina, where I am based, we are starting to look at niche strategies.

LPEJ: What advantages do you find attending Latin Markets’ Private Equity events

PG: The event in Brazil was great. The program was broad and deep and the organization was superb.

Interviewed by Seth Fraser for LPEJ Week of February 24, 2014.