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AGRO-ECOLOGICAL BLOGFarmland Investing - Are you asking the right questions?Farmland is a novel but increasingly interesting asset class for many investors. One of the major tasks for those investigating this asset class is recognising that as a genuinely alternative asset class it requires an ‘alternative’ approach in terms of questions and understanding. Farmland is not buyouts or VC so asking the standard, classical and proven questions for those sectors is not necessarily going to generate particularly useful insights. The first task is to understand what are the questions you need to be asking? You won’t find the former Morgan Stanley or Goldman Sachs farmland team setting up shop as an independent farmland asset management firm. For one reason, investment banks don’t have practical farmland management teams.....it just does not work like that. You simply cannot develop the knowledge and experience that is required to understand and manage farmland assets by sitting in an office in London or New York for 20 years. To create a functional and successful agro-ecological system requires tested, practical and specialist expertise. Areas that are worth thinking about when considering farmland investment are geography (in the widest sense), resilience, genuine sustainability, i.e. that rooted in ecological science, insight and practice, and how the management team makes a difference at ground level - because that is the level from where performance is driven. Some questions for LPs to consider: Is your farmland asset manager truly competent, qualified and interested in sustainability (as described above) or is it merely ‘chat’/marketing...’Green is the new buzzword’, ‘some of my best friends are sustainable’ etc. Is farmland fundamental/core to their business (being?) or is it just another fund product to flog? Do they have sufficient dirt under the fingernails i.e. can your farmland asset manager jump on a horse, take a couple of dogs and muster a mob of ewes? Are they committed to farmland, does it enthuse them, is it in the blood and a fundamental part of who they are? It needs to be. Farmland is not just another asset class. To identify good assets and then manage those assets, particularly organically, which is more demanding of management ability; takes depth of knowledge, experience and understanding combined with a genuine passion for the land, for farming. It is an asset class for the genuinely long term, multigenerational investor. It attracts investors looking for classically PE structures, i.e. 8-10 year exit but also those not necessarily thinking so much of exit (“Why sell high quality income generating assets?”) but of on-going income from developing (not degrading) assets, assets with scope for enhanced and even new income streams (biodiversity, carbon, new crops etc.). If managed well, farmland will reward with performance over the very long term. The appropriate management team will generate resilience which will see it through the inevitable climatic challenges and commodity market dips. LPs need to know they are speaking with and backing people who have those qualities, who have the right answers to the questions above. It is essential in generating performance and it is the detail level where the average can become the exceptional in terms of on farm performance, where a team genuinely creates alpha.
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