AUSTRALIAN agricultural land could finally become as attractive to institutional investors as it has been in the US, with global property index business IPD about to launch a new index for farmland across the country.
IPD Australia managing director Anthony De Francesco confirmed his team, in conjunction with Australia's veteran of agricultural land investment Frank Delahunty, would establish an index within the next six months that covered more than $2 billion in agricultural land investments.
"The motivation is simple: agricultural land needs to become institutionalised," Mr De Francesco said.
One of the biggest issues facing agriculture in Australia today has been the unwillingness of domestic institutional investors to put money into our farms.
"If this sector wants to grow, it needs institutional capital and that needs consistent performance metrics," Mr De Francesco said.
"Such an index will provide those measures, and that will improve transparency and governance, which helps fund managers make investments."Follows infrastructure return index
The rural index follows IPD's move last year into the infrastructure sector, launching the first unlisted infrastructure return index.
The rural index could include major investors such as Macquarie Group, TIAA-CREF Global Agriculture, and Hassad Australia – backed by a Qatar sovereign wealth fund.
The rural index is likely to mirror that of the Farmland and Timberland indices established under the United States' National Council of Real Estate Investment Fiduciaries.
Those indices have been successful for the benchmarking purposes required by institutional investors there. Farmland in the United States has become highly institutionalised with groups such as Westchester – backed by TIAA-CREF, having received major support from financial service firms.
The threshold for establishing the Australian rural land index needs to be $2 billion worth of land emanating from at least 15 different data contributors. So far IPD has potential data contributors of 15, totalling about $2.5 billion but is at the stage where it needs to convert verbal intentions from these contributors to solid commitments.Investment asset class Mr Delahunty said establishing the index was essential for rural land to be recognised as a proper investment product. "If we want to get truly recognised as an asset class we need to have a performance index that is accurate and timely," he said.
"Agriculture in Australia has never had an index and we will be discriminated against until we do have one."
Mr Delahunty has had experience setting up agricultural land vehicles such as the Sustainable Agriculture Fund, backed by some of Australia's biggest superannuation funds such as AustralianSuper.
He said an index was essential for giving fund managers a "credible" way to measure performance in the agricultural investment space.