by ANDREW MARSHALL
08 May, 2015 02:00 AM
Investment institutions are cautious about the risks and don’t have time to pussy-foot around
FARMERS looking for a paltry $5 million or even $15m from outside investors to help fund their business expansion and marketing plans won’t get much interest from the global investment marketplace, despite growing excitement about agribusiness opportunities.
They need to be asking for about $50 million, at least, says rural asset manager Tony Lovell.
Farmers also need to have a solid growth proposal to support their funding ideas, preferably one which involves aggregating several rural properties and building an enterprise with considerable scale and diversity.
Despite the opportunities Australian agriculture offers for outside investors as nearby developing markets get hungrier for protein and premium-grade foods, investment institutions are cautious about the risks and don’t have time to pussy-foot around with small scale initiatives.
“If you’ve got a plan and you need to find the money to make it happen, you need to have a good pitch and a well-researched strategy – regardless of who you are trying to get your funds from,” Mr Lovell told producers at Beef 2015 in Rockhampton.
The co-founder and chief executive officer of SLM Partners said his business spent seven years building its case to attract investors, which now chiefly include Dutch and Danish pension funds, to finance its expanding cattle operations in western Queensland and NSW.
The fragmented and unpredictable nature of farming, particularly family farms, was not an easy environment in which to make a pitch to cashed-up overseas fund managers.
Many family-run enterprises first needed capital to make catch-up investments in technology, water management or farm infrastructure. Then they needed to scale up.
But even producers with innovative and successful businesses could struggle to find joint venture backing from the vast pools of superannuation cash washing around the world because fund managers simply “don’t have the head space to cope with a whole lot of chunks of money scattered in small parcels”.
Not even negative interest rates in Europe were enough to push fund managers into parking small parcels of savings and pension fund wealth in what could become potentially rewarding long-term agricultural ventures with Australian producers or in many other agribusiness markets.
Ag ‘too lumpy’?
Of the $68 trillion of global asset funds under management in various industries worldwide, Mr Lovell said only about $15 billion was currently invested in cropping and grazing farmland.
Fund managers responsible for finding the most appropriate investment options generally regarded agriculture as “too lumpy” with too few investable products to choose from.
Too few asset managers were geared-up to understand and cover agribusiness.
Most fund managers also felt returns from agriculture were too low and too volatile to be worth their while compared to alternative investment options in real estate, infrastructure, hedge funds or commodity funds.
They also needed to limit their specific risk exposure in an agricultural investment to less than 20 per cent of the total value of the venture.
“They’re not fools. The fund managers responsible for this sort of money have been doing this for a long time and you have to satisfy the criteria they know and expect and make it attractive for them to want to invest.”
However, despite the investment pitfalls and frustrations, Mr Lovell, who grew up on a dairy farm, said agriculture was a hugely positive business to be part of.
It needed farmers to be positive and excited about productivity opportunities, which in turn would help promote confidence and optimism within the investor sector.
His own company had about $105m in local and overseas funds invested or available to be spent on SLM’s operations from Blackall to Quilpie in Queensland and Engonnia in northern NSW.
He said agriculture’s investment “lumpiness” was also a positive – investors involved in farming were generally committed for the long haul.
“It’s not an easy industry to jump out of when you’re feeling a bit fickle and you think it might be time to abandon.”
He said long-term investments – even lumpy ones – were what successful investors like US billionaire Warren Buffett tended to follow and make money from.