Real assets of all stripes are getting noticed by investors these days; with returns under pressure across all asset classes, the appeal of investments that can provide steady cash yields is growing. One of the real assets getting attention more recently from institutional investors is agriculture.
According to Agriculture: A New Asset Class Presents Opportunities for Institutional Investors, posted by Global AgInvesting, only 0.5 percent of the total value of farmland globally is held by in institutional portfolios; however, institutional investment in farmland has been growing annually at 8 percent to 10 percent. The report notes:
“While most investment has been concentrated in row cropland land in North and South America, institutional appetite for agricultural investment in Australia and Eastern Europe is increasing, as well as interest in permanent crops.”
Row crops, as the name suggests, are grown and tended in rows and include corn and soybeans, while permanent crops include such things as fruit, nut and olive trees, and vineyards.
Many investors with experience in timberland investing, an asset class with similarities to agriculture, expanded into agricultural investments between 2005–2008 as commodity prices rose, buying farmland to primarily grow row crops in North and South America — and the early interest in the sector has continued. The report notes:
“HighQuest estimates that over the past decade about $45 billion of institutional capital has been invested globally in farmland. As recently as November 2015, TIAA raised a $3 billion fund, which included internally generated funds as well as limited partnership contributions from peer institutions.”
As for the future, the report notes while farmland is an immature asset class compared to timber, the investable universe for farmland is more than three times the size of that for timber, and there is room to grow:
“This explains why many traditional institutional timber investors have already invested in farmland, or are currently considering doing so.”
The views, statements and opinions expressed in this article are those of the author and are not necessarily those of Institutional Real Estate, Inc.
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Drew Campbell is senior editor of Institutional Investing in Infrastructure.
