Investors eager to expand into agricultural assets

NEW YORK - Investor interest in agriculture is continuing to rise and investment experts expect to double assets under management in the next three years, according to a survey.

But several factors, including the lack of transparency of this still-emerging asset class, are making some investors skittish.

"That is one of the main issues," said Bill Kiernan, director of research for global agriculture investment at consulting firm HighQuest Partners.

"The whole idea of investing into agriculture as a sector ... is really pretty new and it has been growing pretty fast. So you have a lot of investment managers out there who are launching fairly new funds and they have not yet established a track record. The lack of track record and a lack of benchmarks in the industry makes some investors nervous."

But they are curious. An estimated 700 people attended the Global AgInvesting 2012 conference in New York this week, roughly double the attendance just three years ago at the annual event. Some 33 percent were investors, 41 percent investment managers and the rest various industry participants.

Of those attending, agriculture-focused investment managers with $16.2 billion in assets under management said interest in the sector is so strong that they expected to add $17.3 billion to their portfolios over the next three years, according to a survey of conference attendees conducted by HighQuest.

Diversified investment managers with portfolios of about $3.6 billion expect another $3.4 billion, according to the survey results.

Row crop farmland remains a key areas of interest, as corn, soybeans and other crops command high prices in the marketplace amid strong demand for food and fuel.

Investors are also eyeing infrastructure investments such as storage facilities and transportation operations, according to the survey.

Investment managers said rising U.S. farmland prices were making it harder to find quality land and high returns, and a lot of capital flow is moving to developing nations.

Africa and Latin America are areas targeted for higher returns, although there has been increasing opposition to foreign land investments in Africa.

Opponents of Wall Street "land grabs" in Africa protested outside the New York conference this week, as an international group of researchers and representatives from non-governmental organizations rolled out a database showing that, although the rush by investor for global farmland has fallen from a peak in 2009, it remains active, and Africa is a top target.

Since 2000 nearly 5 percent of Africa's agricultural land and been purchased or leased by outside investors, the database and accompanying reports shows.

Critics charge the land grabs hurt small local farmers and often alter the use of the land in ways that are environmentally unsustainable.

Such opposition is noted by the investment community.

"It is definitely a concern," said Kiernan. "Putting money in farmland in the U.S. isn't a big deal. But in places like Africa it becomes a big issue."

Areas in Europe were seeing interest, including areas in Ukraine, where rich farmland was drawing U.S. and other investors.

The SigmaBleyzer private equity investor group, through its agriculture unit, has since 2010 invested in about 180,000 acres - or 73,000 hectares - to grow wheat and other row crops on five farms in Ukraine. The group is looking for more, said John Shmorhun, president of SigmaBleyzer's agriholding Harmelia Ltd.

"The level of competition has increased for sure," said Shmorhun who traveled from Ukraine to New York to network at the conference.

Many investors said the lack of transparency in the valuation and performance of farmland is a limiting factor for investments, as is a lack of seasoned farm managers to professionally oversee the farmland bought by investors.

Charlie McNairy, CEO and managing partner of the International Farming Corporation investment management group, said the market needs at the least, standardized appraisals, to make it easier for money to flow into the sector.

Jose Minaya, managing director and head of natural resources & infrastructure investments for TIAA-CREF, said that, with growing demand for food and fuel, more capital is needed in the sector.

"People need to eat," Minaya added.

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