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Guess Who Just Plowed $3 Billion Into Farmland?

While retail investors hold their hats watching markets swing back and forth this summer, the world’s deepest pockets are seeding a new fund that will buy stakes in a rather boring asset-class: Farmland.

TIAA-CREF, a multibillion-dollar investment manager, this week announced it has exceeded its $2.5 billion goal and raised $3 billion for a new agriculture fund. TIAA-CREF Global Agriculture II LLC is the asset manager’s second global agriculture investment partnership. The first fund, closed in 2012, raised about $2 billion.

The new fund will invest in “high-quality farmland assets across numerous geographies spanning North America, South America and Australia,” TIAA-CREF says. The pool has capital commitments from U.S. and international institutional investors, with numerous return commitments from the firm’s first farmland investment. TCGA II has 20 investors, including AP2, Cummins UK Pension Plan Trustee Ltd., Environment Agency Pension Fund, Greater Manchester Pension Fund, New Mexico State Investment Council and the TIAA general account.

“With its low correlation to traditional asset classes like stocks and bonds, farmland offers excellent portfolio diversification benefits for investors and a hedge against inflation,” says Jose Minaya, senior managing director and Head of Private Markets Asset Management at TIAA-CREF Asset Management.

“The macroeconomic fundamentals for investing in farmland are very positive and we view the launch of this new strategy as a testament to the ongoing potential and attractiveness of this asset class.”

The oversubscribed fund underscores a trend that has become clear in recent months. Wealthy investors are looking for more alternative assets to offset the volatility of the stock and bond markets.

“Smart money is investing in hard assets,” FullCapitalStack Chief Investment Officer Nikki Vasco says. “Whether its farmland or another form of real estate, many investors are looking for asset classes that can hedge against inflation and shield some of the market volatility we see today.”

TIAA-CREF, which has $500 billion in assets under management from top institutional investors worldwide, currently manages approximately $8 billion in farmland assets and commitments around the world. It has been investing in agriculture since 2007.

A recent Wall Street Journal report on farmland investing pointed to hopes among investors — both institutional and individuals — that the asset class will gain value as food consumption increases amid rising global populations. In addition, farmland often generates income from rent paid by farmers.

Several firms have also recently created REITs for retail investors to own pieces of farmland investments, including Farmland Partners, which went public last year.

It is obvious that some institutional investors believe the benefits of owning hard assets outweighs the risks, despite the recent appreciation and lack of liquidity.

“Farmland is the tortoise in a tortoise and hare race,” Paul Pittman, chief executive of Farmland Partners, told the Wall Street Journal.


Adam O'DanielBy Adam O’Daniel | Editor | QuietStream Financial Insights

 

Are you paying a ‘Liquidity Premium’?

Two investments with the same credit risk profile, potential for upside performance, tax treatment and expected investment period should have the same expected return.

Right?

Not in the real world. We know two very similar investment profiles can be priced very different. Why is that? For many deals, it boils down to liquidity.

Pricing differences in two seemingly similar investment options are often due to the investor’s ability to easily buy and sell the investment — the measure of how “liquid” it is.

Liquidity has been a hot topic lately.  Investors typically pay a significant premium to be in liquid investments such as blue chip stocks and U.S. Treasurys. Is it worth it?

Sure, investors can easily sell a liquid investment. However, on days when the market plummets, many investors lack the stomach to sell. Others sell in fear, regretting their quick exit later. On those days, the premium paid for a liquid investment may not feel like it paid off.

A recent article pointed out that sovereign wealth funds and other large institutional pools focused on long-term wealth creation have seen their allocations to illiquid alternative assets perform better over the long-term investment horizon, compared to more liquid holdings, according to research by Patrick Thomson, global head of Sovereigns at JPMorgan Asset Management.

Thompson says investing with a long-term view of alternative assets can help investors exploit tactical opportunities created by short-term investors forced to liquidate holdings, benefit from mispricing and valuation errors, and take advantage of their capacity to absorb additional risk.

“These advantages have rarely mattered more than now in a capital market environment of low yields, mounting volatility, unexciting global economic growth and subpar investment returns — nor have they contrasted more sharply with the prevailing transaction-oriented mentality,” Thompson writes in FTSE Global Markets.

“Yet today, as much as ever, long-term investors can (and should) access the full range of long-term non-public assets — value-added real estate, infrastructure, private equity and private debt — to diversify their holdings, mute the volatility of the public markets and earn steady and favorable risk-adjusted returns.”

The emergence of real estate investment offerings via online investment platforms makes this method of investing more accessible than ever. The average accredited investor can now follow similar strategies as those sovereign wealth funds.

On days when the public markets are fluctuating (or halting altogether), that a feels like good place to be.


Nikki Baldonieri

By Nikki Vasco | Chief Investment Officer | FullCapitalStack

Did Forbes swing and miss on investing like the uber-rich?

I have always been fascinated by how the world’s wealthiest individuals invest and what we can learn from them.

Recently, I flipped through some articles I’ve had filed away on the investing choices of the uber-wealthy. I found a Forbes story about how the richest people in the world have shifted their allocations. I read the piece again today. All I can say is this: Forbes missed one.

The advent of crowdfunding gives individual accredited investors access to deals once limited to the world's financial elite.

The advent of crowdfunding gives individual accredited investors access to deals once limited to the world’s financial elite.

It’s not a bad piece, or even inaccurate. It’s just missing a key piece of information about how we can invest like the wealthy.

It’s no secret the world’s elite invest differently than up-and-comers still working to get there. For starters (and I talk about this a lot), they invest much less in stocks and much more in hard assets like real estate and private equity. Forbes suggests that any investor looking to emulate the wealthy can shift more dollars to private equity, via stock in the largest PE firms, purchasing shares in a PE fund itself or working with an advisor who specializes in private investments.

Those three methods carry their own sets of challenges. For example, allocating more dollars to publicly traded private-equity stock doesn’t eliminate the volatility many wish to avoid in the market. As for investing directly in funds or with specialized advisors, those routes come with minimum investments that can price many investors out of the opportunity.

So what’s an accredited investor to do?

Here’s what Forbes missed: These changing allocations towards more exposure to private equity represent the wealthy making direct investments with partners they trust. The only secret sauce is that private equity offers exclusive, high-growth opportunities that are typically correlated with the success and failure of a business (ownership), and less dependent on the greater market performance.

Here’s why I get excited: Ten years ago those options available to the wealthy weren’t available to the rest of us. Even two or three years ago, most accredited investors didn’t have ready access to investments in hard assets through a relationship with a proven sponsor. Now they are accessible.

Crowdfunding and online solicitation changed the game. The investing world is becoming flat. Now, it’s possible for the average accredited investor to put their money into pools that support proven, trustworthy partners in real estate and operating companies. Allocations don’t have to be limited to a big publicly traded REIT or PE firm. Today, seasoned pros are putting technology to work and creating platforms that open trusted investing partnerships to a much wider segment.

Here’s where Forbes and I agree. The wealthiest investors in the world don’t allocate much to “buy, hope and pray mutual funds.” Instead, they pick investments with trusted partners that won’t be subject to stock market ups and down. For the first time in history, that advantage is now available to the rest of us.


Nikki VascoBy Nikki Vasco | Chief Investment Officer | FullCapitalStack