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.