Education, Education, Education
For agri-focused investment managers, the need to inform the investing community about the opportunity is still as relevant as ever. As the year draws to a close, I have been catching up with many of you to hear about the year past. What were your successes? What lessons have you learned and what are you planning for in 2015?
The responses have been a mixed bag from high levels of optimism to mixed levels of disappointment.
Optimism has come mainly from those of you deploying capital and watching your strategies play out. Australian Pastoral Fund has been particularly pleased with the outcome of its geographical and seasonal diversification strategy. “The Fund’s strategy has again been validated in 2014, with the business being able to hold back stock from market, and even to purchase other cattle during periods of market price downturns, to be grown, fattened and sold later when the market prices improved,” said Alan Hayes, executive chairman.
For others, however, it’s been a story of fundraising frustration, particularly in regions close to political upheaval.
“Central and Eastern Europe is now perceived as a riskier option than it was this time last year,” Tom Arthey, director at Mintridge told me. “In some ways it clarifies our reasoning for being in European Union countries, but we have learned that we shouldn’t assume people new to the region and the sector will distinguish between different geographical boundaries.”
But there are also more structural forces at play preventing institutional interest from turning into actual investment. For one discretionary manager, who has been analysing a range of agriculture funds during the year, the payment structure of these funds is keeping him from investing his clients’ capital in the asset class. “One of our biggest hang-ups is how people on the ground and the actual mangers of the property are incentivised, and how they are linked together,” he told me last week.
This concern about how operational managers, investment managers and other parties involved in agriculture funds are paid is nothing new. But it highlights the continued need for education to show investors how agri investment offerings really work. Managers should try to collaborate to educate the investment community together, perhaps creating some industry norms in incentivisation, for example.
This education could also span geopolitics to help investors understand how Poland and Romania’s EU agricultural markets are not necessarily effected by unrest in the Ukraine. “I think the education/length of time taken to educate people about agri has probably been a bit longer than any of us thought,” said an Australian livestock asset manager.
And it is not just about convincing one person. As we heard at the Agri Investor Forum in Chicago last month, investment managers also need to help the portfolio manager in question to educate his board – or “that group of unknown faces” as one manager described them. They can help to do this by providing as much information as possible to cover their key concerns. Some agri investment managers still lack the expertise to present their investment case properly though, according to Renee Cheung, an independent consultant for sustainable agriculture projects. “Increasing numbers of potential clients, mostly asset managers, are asking me to assist them with understanding what investors look for and how to present their investment case in a way that is attractive to investors,” she said. “This leads me to think there is a need for the sustainable agriculture investment sector to acquire more experience and talent in marketing and fundraising.” By all accounts, levels of investor interest in agriculture and agribusiness are higher than ever before. Major private equity firms such as KKR and Abraaj Capital have given the sector their approval through a range of agri-focused deals. But it’s still the lack of understanding of the various nuances of agriculture’s sub-sectors that is keeping investors at bay. So, managers: educate, educate, educate!