No, it’s not commodity trading. Hancock, a unit of Manulife Financial Corp. MFC-T, has so far plowed more than $1-billion into actual farmland, mostly in the United States. It is among many large and small private equity firms, hedge funds, asset managers and other investment groups hoping to harvest long-term profits from the soil.
In Wall Street terms, the heartland is hot. Increasingly, big-city investors emerging from a bruising economic downturn sparked by the collapse of esoteric financial products are putting money into Illinois corn fields, California cranberry bogs and Brazilian sugarcane. Overseas, African farms, as well as ones in Australia and Eastern Europe, have emerged as financial opportunities.
“Interest has been growing,” said Hancock president Jeffrey Conrad, who calculates that his group picked up more than 30 new farm properties last year for investors. “In the age of derivatives and evaporating valuations, farmland is gold with a cash flow.”
Synthetic CDOs, naked shorts and structured finance are not going away. But investment groups say that agriculture has seldom been more appealing. Stubbornly high commodity prices and the steady appreciation in land values can translate to a solid inflation hedge with attractive potential long-term returns. And unlike most Wall Street products, nothing says fundamentals like a farm.
“This is not some derivative security. You can go to the farm and touch the soil,” said Edward Ho, a partner with the London-based Altima Partners investment adviser and hedge fund sponsor.
Jeffrey Conrad, president of Hancock Agricultural Investment Group.
Altima, which already has about $1-billion in farm and related investments, is planning to launch a new agriculture equity fund this spring. Several other firms say they will introduce similar funds this year.
The World Bank and the United Nations Food and Agriculture Organization (FAO) cited the trend in a report in January, noting a “sharp increase” in agricultural investments the world over. Such private investment could offer significant benefits to the sector – not to mention the human race – by helping modernize farming tools and techniques, the agencies said.
Not everybody is thrilled by Wall Street’s hay ride, however. At a World Bank gathering in Washington last month critics addressed the implications of the trend, calling it a modern-day land rush. They worry in particular about what they label an unfair transfer of valuable land and water resources from the poor to the wealthy.
Investment groups counter that their dollars are key to transforming a diminishing amount of arable land around the world into high-yielding, efficient food factories. And they don’t see financial interest ebbing any time soon.
There is even talk of forming a publicly traded farmland Real Estate Investment Trust, similar to the REITs that were launched to make commercial real estate investing available to small investors.
“I do not believe it is a fad. When you look at the fundamentals they are very compelling,” said Jose Minaya, a former mergers and acquisitions specialist on Wall Street who now manages a $2-billion agricultural investment portfolio at TIAA-CREF.
With $414-billion in assets under management, TIAA-CREF is one of the largest U.S. financial services companies. Its four-year-old agricultural portfolio includes investments in corn, soybeans, cotton, rice, wheat and barley fields as well as apples and vineyards.
“We want to go after the key factor in production -- the land,” Mr. Minaya said. “The end product is food, which is essential for human life.”
Industry estimates put the still nascent asset class of global farmland for investors at $15-billion in equity spread among about 40 different institutional players globally. But the amount is likely much larger if you take into account government-linked companies such as sovereign funds, individual entrepreneurs and wealthy families.
A lot of the action is taking place abroad.
