Since most of these farms were commercial entities with big operating budgets, they provide a decent indication of the opportunities available to investors, Frontier writes. While this top quartile is a moving sub-set of the farms surveyed, “it is understood, however, that there is a fairly high degree of stability within this top quartile”.
But roughly half of the returns from the top-quartile farms were generated by capital growth or increases in land values, the primary drivers of direct property returns. These similarities “diminish the diversification impact” of the investment case for agriculture, Frontier’s report stated.
The macroeconomic forces driving agriculture, however, may warrant further development of the investment market for it. “Notwithstanding the uncertainty around the data and investment capabilities of managers in the sector, the strong fundamentals of the forecast supply-demand balance suggest that a sufficient look-forward investment case is present”.
The search for new cash cows
Telstra Super and Vision Super are two major investors in the $100 million Warakirri Dairy Industry Trust, a specialist fund that buys and operates Australian dairy properties. The two funds regard the allocations to agriculture as diversifiers within their portfolios. Lachlan Beaton, head of agribusiness at Warakirri, says the product is an investment in both property and farm operations, differentiating it from other direct property holdings.
At the core of the decision to build the fund is the belief that “dairy stacked up as a solid investment over the long-term,” Beaton says, adding that Warakirri was not specifically searching for an agricultural theme, but happened across the opportunity. The same goes for its two major investors.
Telstra Super’s $30 million investment in the trust was made to provide diversification and a reliable income flow within its direct property portfolio, Kent Robbins, property manager at the $11 billion fund, says. Since rural properties are not affected by the same economic forces as office, manufacturing or retail properties in cities, their return cycles usually tend to be different, Robbins says.
Nor are agricultural properties caught in the buy-sell cycles of urban real estate investment trusts (REITs). “Diversified REITs buy all three – office, manufacturing and retail assets – and they often bid for these assets when other buyers bid, when there is liquidity, and get out when there is none, whereas rural properties attract different buyers and sellers.”
That the trust could be implemented as “a reasonable diversifier, with private equity and property characteristics,” was one motivation for Vision Super’s $50 million mandate to the Warakirri trust, Graeme Smith, investment manager with the super fund, says. Another was the potential for returns. “We look at opportunities as they come along – what they could add on a risk-return basis to the portfolio, whether they are rural or not.”
