The New Zealand Superannuation Fund has just 1 percent of its $34.09 billion fund allocated to rural farmland investments as of March 31 of this year, however the fund is targeting an allocation of 3 percent – half of which will be committed to domestic investments, while the other half will make up a war chest for overseas deals.
Currently, the fund has $204 million tied up in its rural portfolio – made up completely of local dairy investments. However, the fund has signaled that it will be looking to allocate capital to strategic investments beyond dairy, reaching into beef and permanent crop land, as well as opportunities overseas in Australia.
“We are interested in more agricultural investments, not only in New Zealand, but also offshore,” Neil Woods, the fund’s manager in charge of agriculture and timber investments, told BusinessDesk. “We have got nothing offshore at the moment but we are actually focusing quite a lot of effort on offshore and it’s unlikely to be dairy offshore because we do it so well at home.”
Although the fund recently acquired 21 New Zealand dairy farms, Woods indicated that the purchases arose from an opportunity presenting itself, and that moving forward, the fund will be pursuing a course of diversification for its ag portfolio, with particular attention to stonefruit and pipfruit orchards, and vineyards.
The fund is also considering investments in cattle operations, and is currently in discussions with industry players to winnow out if there are any available opportunities to acquire existing operations, or to develop greenfield projects. However, as an institutional investor, the fund is looking for large scale investments in the area of $50 million in any given sector to warrant the necessary specialty managers.
“We are very positive about the long-term part of the ag sector and we are actively looking,” said Woods. “We are making steady progress I think in terms of getting comfortable with further investment opportunities.”
Why Australia?
New Zealand Super is also looking to not only diversify into other crops, but into other geographies as well, with its sights set on beef and permanent crop investments being sealed in Australia by the end of the year, followed by a possible expansion into North America.
One of the questions asked of a panel consisting of leaders in Australia’s ag space at Global AgInvesting (GAI) 2017 in New York was, “Why Australia?” Elizabeth O’Leary, head of Ag Macquarie Infrastructure & Real Assets, responded, “There is a much more transparent system of farmland ownership – the regime is well understood and stable. No question it’s a very competitive space.”
Meanwhile, Richard Kriedemann, Partner Allens noted how investments in Australia’s ag sector have matured in recent years, saying, “From a deal perspective, cattle and horticulture are hot – we are also seeing the move from very small farms to operations large enough to be investment opportunities for pension funds etc. Over the past two years – things have been changing.”
Troy Setter, CEO of Consolidated Pastoral Company, also noted at GAI NY 2017 the positive outlook for Australia’s beef sector.
“The emerging middle class in Asia – this is driving more beef consumption across Asia. Combined with dwindling global cattle herds, it points to positive market for Australian beef.”
These advantages along with Australia’s geopolitical stability providing a low-risk investment environment are drawing the eyes of overseas institutional investors.
We are tending to look for safer geographies from a political-legal framework perspective as our next step outside of New Zealand,” said Woods. “It’s really that risk return trade off. Australia provides quite a bit of interest for us at the moment.”
Undeniably, this shift in focus could also lead to certain divestments for the superfund. As some of the fund’s dairy assets have been held under management for six years, a review of the portfolio could lead to the sale of select properties.
“We are in a position now where we are able to evaluate whether we have done what we can with them and we should churn some out,” said Woods. “Whilst we think the future expected returns will continue to deliver what we need off a particular property we will continue to hold it. If the market is offering prices that mean we are better off putting that capital to work somewhere else, then we will take that opportunity to recycle.”
-Lynda Kiernan
Lynda Kiernan is Editor with GAI Media and daily contributor to GAI News. If you would like to submit a contribution for consideration, please contact Ms. Kiernan at lkiernan@globalaginvesting.com.
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