A group of Australian industry super funds, led by Hostplus, is considering setting up a large collective vehicle to invest in Australia’s agricultural sector.
Addressing an international forum on food security in Sydney, Sam Sicilia, Hostplus’ chief investment officer, said it would not be a problem for industry super funds to initially allocate between AUD1bn and AUD2bn (€620m-€1.24bn) to such a vehicle.
In time, it was conceivable that the fund could have up to AUD20bn invested in the sector.
Individually, he conceded that it had been difficult for super funds to reach a scale necessary to give them a viable long-term investment in agriculture.
For some time now, Sicilia, through Hostplus, has been championing the participation of super money in Australia’s agricultural sector.
IPE Real Assets understands that it could take up to a year or more to get all interested parties together to iron out details in forming a funds management company for this purpose.
Silicia said the approach that industry super funds adopted when they formed IFM Investors in 1995 to buy large-scale infrastructure assets could be used as a template for agriculture.
IFM, owned by 27 industry funds, has since emerged as a leading global manager of AUD101bn in infrastructure assets in Australia and overseas.
Rather than trying to aggregate investments to get a portfolio, Silicia said: “What we are talking about now is investing in agricultural Australia. That’s a bigger deal.”
“The traditional way that people have approached super funds to invest in agriculture cannot work for us,” he said, adding that super funds should back vertically-integrated agriculture projects in Australia.
As with infrastructure, Sicilia said industry funds should look to partner with onshore and offshore stakeholders in agriculture to devote billions of dollars in that direction.
Industry super funds, and particularly Sicilia, have been motivated by a report published by the Industry Super Association (ISA) last year.
This report spelt out the opportunities for super funds to help take Australian agriculture to the “next level in global competitiveness”.
It said global investors were rapidly accumulating strategic stakes in local agricultural holdings, with Canadian and American pension funds investing more than AUD1bn into Australia since 2007.
Active investors include Ontario Teachers’ Pension Plan (OTPP), which has set up an Australian subsidiary, AustOn Crop, to manage its Australian almond and avocado plantation investment.
Other notable investors with direct holdings in Australian agriculture include TIAA Westchester and Canada’s Public Sector Pension Investment Board.
The Danish pension fund, Pensionskassernes Administration (PKA) and the APG pension fund both invest through agricultural funds.
The ISA report said Australian industry super funds already have some AUD1.6bn invested in Australian agriculture.
First State Super and Queensland Investment Corporation, which in 2016 bought an 80% stake in a cattle station operator - North Australian Pastoral Company - on behalf of an Australian super fund and the British Pension Protection Fund, are among the first movers.
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The problem with Superfunds is where do they invest?
Agriculture suffers from Produce, Floods, Drought, Forex and Capital extremities.
Do Superfunds:
a. Buy the land freeing up capital for running costs? = Lease payments. One bad year and no lease payments.
b. Buy the stock/crop and onsell? = Superfund adds value by post processing. Superfunds could certainly buy and lease abbatoirs/canneries etc. But what if oversupplied product and cannot sell.
c. Provide Opex costs? = Opex costs could be averaged over 5 years (instead of 1-2 years by traditional finance) so that currency/interest rates/repayments could be better managed.
I think it is a great start however.
I wonder if they are behind the current push to upgrade regional airports. IMO that has great merit. Superfunds just need processing/cannery facilities near these airports and country areas will get a much needed boost.
(20min delay)
