Warakirri Institutional Farmland Fund – Case Study
Warakirri Asset Management has just launched an institutional Farmland Fund which will acquire a portfolio of high-quality agricultural property assets that it will lease to leading agricultural businesses, as Tenant Partners. Portfolio manager for the fund, Steve Jarrott (pictured), and head of marketing and product, Joe Marassa, spoke to Industry Moves about the process of putting the fund together and what's behind the specific structure they've developed
Why did you decide to launch now?
Steve: This fund comes off the back of the Warakirri Diversified Agriculture Fund which we launched for family offices, charities, advisory groups and superannuation funds in 2019. We launched that fund specifically for that target group of investors and demand. We had to fit a high-quality, low volatility agricultural opportunity into their portfolios. What has come off the back off that has been institutional interest in our approach.
The strategy for the Warakirri Farmland Fund is essentially the same as the earlier fund. We just have larger investment commitments on behalf of a smaller pool of large funds.
How did you put this fund together?
Joe: This one was a little bit unique. It started with interest coming from a European pension fund looking to get exposure to the opportunities offered by Australian agriculture. They were looking to come in as a cornerstone investor, so it was probably a little bit different to normal when you’re launching a new fund and then going out to draw assets.
In terms of launching this particular product, we had also seen some interest from the domestic superannuation funds and it was really about whether we could create a pooled vehicle that suited and allowed access to those domestic investors as well as a feeder fund sitting alongside the main fund so that offshore investors could get access to the domestic vehicle. So, there were some complexities associated with that.
Steve: There is also a lot of interest in open-ended vehicles and our REIT like structure. We wanted to design a product and structure that appealed to certain investors, so we were engaging with our cornerstone partner and also other potential investors [around the structure].
How long did it take?
Joe: I think we were in discussions for the better part of 12 months with the European pension fund around the key criteria for them, the risk return profile, type of assets they were looking for and willing to invest in. A lot of discussions were also had around ESG and Warakirri’s credentials in that area. And then when it came to putting the legal structures together actually, we gave ourselves a very optimistic three-month period and we managed to pretty much stick to that.
We’re looking to raise about $500 million and the European pension fund are a substantial investor already.
How are you investing the assets?
Steve: It’s a patient process of deploying the capital into high quality deals. Warakirri has a keen eye and a good skill set for identifying quality agricultural assets. We’re not working with the whole market but focused on that top echelon of both agricultural assets and Tenant Partners. So, it’s about putting all those pieces of the puzzle together, leveraging our more than 24 years experience in agriculture, our network, and our relationships with good tenant counterparties. The fund also has a focus on consistently delivering income returns of at least 5 to 6 per cent per annum, so we’re seeking deals with strong rental yields and relatively long lease terms.
Joe: The fund works on a capital call basis so it’s not that we’re taking the $500 million upfront and running around trying to find assets to backfill the dollars, it’s really the other way around – finding quality assets over time to build out the portfolio
What’s your outlook for the agricultural sector?
Steve: We’re really bullish on agriculture. We see a combination of factors which make Australian agriculture an attractive investment proposition.
Australia is a really important part of the global food chain. Along with rising global consumption, there is the theme of rising middle income earners and the impact of these households moving from food staples towards more appetising, nourishing and safe foods of higher value. A lot of this trend and the consumption growth more broadly, is happening on our doorstep across Asia.
The production fundamentals in this country we also see are really strong. We have complimentary seasons to the Northern Hemisphere; a high quality, clean and green reputation; good global trade channels; and a high rate of technology adoption.
From an investor’s perspective, we also see agriculture as relatively low risk investment. A lot of people cite concern with climatic and market lead volatility in this asset class, but under the right investment structure, at scale and in a well-diversified portfolio, our track record of performance tells us it’s a relatively low volatility investment, that is also uncorrelated to the traditional asset classes.
What is the fee structure?
Joe: for this particular fund it’s a minimum investment of Aussie $20 million and there is a sliding scale base management fee based on investment size. We charge a performance fee of 15 per cent of any outperformance with a high watermark of 8 per cent per annum.