Managers of open-end farmland buy-and-lease funds are increasingly venturing into agribusiness and infrastructure investments in response to demand from their stakeholders.
GPs are diversifying their portfolios to include renewable energy, storage and agricultural infrastructure, while aiming to enhance their relationships with tenants and increase their long-term income potential.
In some cases, this has resulted from existing LPs wanting to move up the risk/reward scale on the agricultural value chain, while in others, firms have launched an infrastructure strategy to dovetail with their existing farmland investments.
We speak to five managers about the expansion of their farmland buy-and-lease strategies and how they have incorporated infrastructure assets into their real asset plays.
Farmers wise up to closed-end vs open-end
PGIM, the asset management arm of Prudential Financial, manages a 2018-vintage farmland fund that transitioned to an open-end structure in 2021.
The evergreen structure has enabled the firm to engage in projects including renewable energy and storage, capitalizing on the demand for large land tracts in Florida by real estate developers and solar energy companies.
“Especially in leased assets or row crops, they’ve caught onto this notion that some funds are closed-end and that there’s potential disruption to the tenants if the assets are being sold”
Jamie Shen, PGIM
PGIM head of agriculture Jamie Shen tells Agri Investor open-end funds stand to benefit from the opportunities that infrastructure projects present.
“Usually there’s a big option period as they’re working through their permitting processes, then there could be their own development process.
“That takes time, and having the assets and knowing you’re going to manage them over the next 10 years allows you to pursue that type of ancillary income or potential higher and better uses for your investments.”
PGIM’s strategy has yielded results. In one instance, the firm acquired farmland from a closed-end fund and sold part of it to a solar developer within the year.
“Had that fund not had a closed-end structure, they could have benefited from that, but they were not able to because of that structure.”
Shen says open-end structures also allow investment managers to attract high-quality tenants.
“Especially in leased assets or row crops, they’ve caught onto this notion that some funds are closed-end and that there’s potential disruption to the tenants if the assets are being sold.”
She adds that agribusinesses are also increasingly questioning the structure of funds before signing on to agreements, with a clear preference for open-end.
Shen says a closed-end structure still has its place in a private-equity-type strategy of acquiring businesses and turning them around – but this is not where PGIM plays in the market.
“We consider ourselves to be core farmland managers, and so it’s really not an appropriate structure for the investment strategies that we employ today.”
Bonnefield’s fresh agribusiness foray
Canadian fund manager Bonnefield is another GP that considers itself a core farmland manager.
The firm has a 2017-vinatage open-end, buy-and-lease farmland fund aimed at high-net-worth individuals in market, as well as a 2019-vintage with the same structure aimed at institutional investors, which is its flagship fund.
In 2023, the Toronto-based asset manager took a departure from its traditional farmland mandate – the firm launched the closed-end Bonnefield Agribusiness Fund in response to demand from its existing farmer base and LPs who had become comfortable with the asset class.
“Where we see it, we may do a sale-leaseback when we see a critical piece of infrastructure”
Andrea Gruza, Bonnefield
“We’ve had many farmers over the years say, ‘Hey, we really like what you’ve done for us on the farmland side of our business – can you help me with my storage facility, my processing facility, et cetera?’” says Bonnefield chief executive officer Tom Eisenhauer.
“On the other side, we’ve had a lot of investors say, ‘We love what you’ve done on the farmland side – can you move me up the risk-reward value chain a little bit, perhaps not all the way to venture, but something that fits within the low-risk, attractive-return profile that Bonnefield is known for?’”
The firm is pursuing mid-market assets with a strong growth profile that are not for sale, but need financing to unlock their growth potential and are placed within “one or two handshakes from the farmgate,” says managing partner Andrea Gruza.
“It could be cleaning, storage or that first level of processing. The fund is doing minority investments into agribusiness through structured capital, so that could be a sub-debt with warrants, or a participating preferred equity structure, and where we see it, we may do a sale-leaseback when we see a critical piece of infrastructure.”
The Agribusiness Fund will target mid- to upper-teen returns and will dovetail, where possible, with the firm’s existing farmland base to support the availability of infrastructure to its existing tenants, but is not limited to making investments in regions where it is already a farmland owner.
“If we can support some of the investment in those processing facilities in Canada, that allows our farmers to improve their profitability,” says Gruza. “So as a farmland owner, not only do you then have the benefit of having your farmers be more profitable and farmland values increase over time, but as the group looking to underwrite and diligence these facilities, one of the areas that you need to understand is, what’s the supply going to be like?
“Given we have the relationship with so many of the growers, that helps to de-risk some of that diligence and get greater comfort.”
Manulife cracks the closed-end nut
Manulife Investment Management has also embraced the integration of agribusiness with farmland investments.
But unlike Bonnefield, Manulife has done so through a single, integrated farmland and agribusiness vehicle, and to add yet another twist, the firm’s Permanent Cropland Plus Fund uses a closed-end structure. Manulife also manages the 2018-vintage Hancock Timberland and Farmland Fund, which is an open-end, buy-and-lease vehicle.
Manulife Permanent Cropland Plus Fund (MPCPF) targets higher-risk, higher-return opportunities by combining traditional farming investments with midstream agricultural assets such as processing and marketing infrastructure.
“MPCPF allows a broader range of investors, with a minimum of $10 million, to invest in a well-diversified portfolio of US permanent cropland and farmland plus assets”
Julie Koeninger, Manulife
Manulife made its first investment under the strategy in July 2023, taking a minority stake in Parreira Almond Holding Company, a California-based almond processor.
Manulife managing director Julie Koeninger said the inspiration for MPCPF stemmed from clients’ demand for access to a more diversified agricultural portfolio.
“We have particular expertise, honed over 30-plus years, in developing and directly operating permanent crops such as almonds, pistachios, wine grapes, apples and cranberries, but until MPCPF, only our larger SMA clients were able to invest in an ag-only portfolio of these types of crops.
“MPCPF allows a broader range of investors, with a minimum of $10 million, to invest in a well-diversified portfolio of US permanent cropland and farmland plus assets that currently includes almonds, pistachios, apples, cherries, blueberries and an investment in an almond processor.”
The decision to structure MPCPF as a closed-end fund arose from consultations with potential LPs.
“The conclusion was that given the opportunistic, developmental nature of the fund, it requires a long-term investment horizon, which led us to a closed-end vehicle.”
The fund has a 15-year term, extendable up to 20 years if supported by two-thirds of the LPs.
Centuria finds growth in glasshouses
Australian stock exchange-listed investment manager Centuria Capital Group does not have a long history in the farmland space, but what it has done in the last three years has already made it an agricultural infrastructure powerhouse.
Centuria acquired ASX-listed real estate fund manager Primewest in April 2021 in a A$600 million deal, giving it exposure to its first set of agricultural and retail assets.
The firm launched the unlisted open-end Centuria Agriculture Fund in 2022, which is not a conventional farmland strategy at all – it exclusively pursues glasshouses (also known as greenhouses).
Centuria has acquired five of Australia’s largest tomato glasshouses, including a A$100 million ($66 million; €61 million) glasshouse in Victoria.
“With uncertainty in the economy generally at the moment, we’re focused on setting up agricultural investments that don’t expose us to those risks, and work with exceptional tenants who are proven to have managed those risks”
Andrew Tout, Centuria
The firm’s strategy involves maintaining long-term leases with operators like P’Petual Holdings – which operates its A$21.5 million Adelaide Plains assets – allowing tenants to operate under a capital-light model while securing stable, year-round production.
The glasshouses are used to grow crops such as tomatoes, capsicums, cucumbers and blueberries, among others.
Centuria Capital head of agriculture Andrew Tout says that with investors always looking for secure options, the current economic environment makes it crucial to work with strong, large-scale businesses.
“With uncertainty in the economy generally at the moment, we’re focused on setting up agricultural investments that don’t expose us to those risks, and work with exceptional tenants who are proven to have managed those risks.”
Centuria Agriculture Fund has grown to manage about A$450 million in assets and the firm aims to continue expanding its portfolio with a focus on assets resilient to negative weather impacts.
Meanwhile, Centuria’s 2021 acquisition of Primewest has allowed it to add to the latter’s existing winery and vineyard assets outside of the agriculture fund.
The firm acquired six vineyards from Carlyle’s Accolade Wines in an A$8.2 million deal in 2022, which is housed alongside its other vineyard assets in the Primewest Agricultural Trust No 1. The agricultural trust portfolio consists of 11 assets worth A$115.2 million.
Centuria’s two-pronged approach to its agricultural investments has allowed it to run a seasonal fruits buy-and-lease permanent crop strategy through Primewest, while its open-end agriculture fund is home to its glasshouse infrastructure assets, which it uses to grow year-round crops in a controlled environment.
The variety of approaches employed by the five managers profiled in this story to integrate farmland and agribusiness or infrastructure assets is testament to the evolution of the farmland investment model.
From listed financial groups with limited history in the asset class through to GPs that have racked up almost two decades in the field, open-end farmland plays have gone from being the outlier in the aftermath of the global financial crisis, to the foundation on which additional agricultural strategies are built.
Roc-solid strategy
Roc Partners makes use of both open- and closed-end funds to suit different purposes.
Through the closed-end Roc Food Fund II, it pursues a vertically integrated model, focusing on acquiring and growing market-leading food producers in Australia and New Zealand.
The fund, which has a A$600 million fundraising target, aims to invest in businesses like those in its first food fund such as tomato producer Flavorite, which have control over much of the supply chains they work within – although Fund II will lean more into an own-and-operate model than Fund I.
Roc Partners managing partner Brad Mytton says closed-end structures can support early growth expenditure to position assets for monetization at the fund’s exit.
However, Mytton says for a buy-and-lease strategy, open-end funds such as the Roc Agri+ Infrastructure, can allow for a greater focus on long-term asset maintenance and a partnership with tenants, ensuring sustained growth and value creation.
“If you’ve got a 20- or 30-year partnership with someone, you’re probably going to work through those things together at the time, whereas if you’re in a closed-end fund, you may be less focused on your replant obligations because it’s going to be the next guy’s problem, not yours.”
In the third and final part of our open-end farmland Deep Dive which will be published on December 2, we speak to ASR Real Estate, International Farming Corporation and SLM Partners about their respective strategies that each go against the grain in their own way.