"We are just seeing the emergence of agriculture as a serious opportunity for investors.": Q&A with Growth Farms Australia's David Sackett August 2018
David Sackett has a multi-decade career in Australian agriculture. As managing director of Growth Farms Australia he oversees over $450m of assets across a range of crops and livestock including sheep, beef, cotton and sugar. He spoke to Industry Moves about the group's latest wholesale offering, that will buy agricultural land and water rights and lease them to third-party farming businesses. David shared his passion for the sector, and ESG investing, and explained how it is 'growing' as a serious asset class.
- What made you decide to launch a fund of this nature?
We have, for some years, believed that there is a need to provide a way for investors to get exposure to agriculture without it being totally tax driven, and without wearing all the ups and downs associated with the weather, prices, currency etc. We saw buying farms, and then leasing them to existing good farming businesses as the solution. Investors get the exposure to a different asset class, which has a very low correlation with other investment classes, while receiving low-risk rental income and land appreciation over time.
- Did you see the investment opportunity first, or the demand amongst primary producers or both?
From my previous career as an agricultural consultant, we know there has always been strong demand from existing farmers to expand by leasing. It makes great sense in that they require less capital for expansion. The opportunity to develop the Australian Agricultural Lease Fund came out of a meeting with Providence Wealth a few years ago when we had a discussion about how to provide low risk agricultural exposure for their clients. We then went on to develop the concept into the fund.
- You’ve already received investment from one cornerstone investor - Providence Wealth - what is the size of that investment and do you expect similar interest from other financial planning firms?
Providence Wealth, through their clients, is investing circa $10 million in the fund. We have had discussion with a number of other wealth advisory businesses, and there is strong interest, so we expect we will receive additional investment from the sector. It provides exposure to the thematic of Asian growth, and changing diets, as well as the benefits from very low correlations to other asset classes, so investors can diversify into agriculture and achieve strong risk adjusted returns.
- Have you had, or do you expect, interest from institutional investors? And would you exceed the $100 million maximum size you’re targeting?
Yes we have interest from institutional investors and they are in due diligence now. We won’t exceed the cap – we want to be able to focus on deploying the capital well once we close the fund. If demand is strong we would look to do a separate second fund following this one, once we are invested. The last thing we want to do is move the market while we are buying farms.
- You’ve also said that you want to leave each farm in a better condition than you find it, how do you plan to do that?
We have an ESG focus so we will be looking to remediate any environmental issues and manage any indigenous sites appropriately. Some of our best agricultural land has some quite endangered ecosystems, for example, grassy box woodland, which has been heavily cleared simply because it is such good farmland. We will preserve and enhance remnant ecosystem areas. We will also expect tenants to implement best practice farm management and our staff, who are all experts in agriculture, will be monitoring the management. Growth Farms is already a signatory to UN Principles for Responsible Investment.
- The fund will acquire farmland and water rights, are there any unusual assets you might consider?
This is about a low risk investment in agriculture so we won’t be getting too fancy with exotic crops or animals - like tea tree, ostriches or sandalwood. Investments will be mainstream and we will consider each investment on its merits.
- What happens to the assets after the 10 years (or five years if your members vote to wind it up early)?
We are keeping the exit options open. We will offer the tenants a last right of refusal to buy the farm at market, which provides alignment because the tenants will act more like owners during their tenancy. For the balance of the portfolio we might have a trade sale, perhaps it could serve as a high quality portfolio for a larger institutional investor, or we might even list it as a REIT. We want to keep our options open, so we can make the best call when the time comes.
- What makes you so passionate about agriculture?
It provides a new and low-risk opportunity for investment and is emerging as forestry and infrastructure did over the last twenty or so years. Despite a sometimes-negative perception (such as the current drought in some areas), it provides very good risk-adjusted returns over the long term. It is also a great area of innovation and productivity gain. If you combine buying assets well, with managing them well, it is a great opportunity. And in Australia we are really good at it.
- Is it an untapped investment source?
Yes, we are just seeing the emergence of agriculture as a serious opportunity for investors. It has traditionally been the domain of family businesses because they have patient capital. Some of the overseas pension funds have been early movers, but there is a heap of opportunity. Like any investment, it just needs to be done well.