Investors are increasingly looking to alternative investments to supplement their mainstream portfolios in the wake of negative interest rates and an aging bull market. One of the places that a growing number of investors are putting their money is into farmland.
A recent study by Preqin, a company that compiles data and research for alternative investments, stated that these investors "seek to diversify their portfolios and position themselves to take advantage of growing demand for food arising from global population growth and increased consumption by the emerging middle classes in developing countries.” (For more, see: A Primer for Investing in Agriculture.)
Investors are buying holdings directly in farmland in some cases, while others are investing in agricultural business or technology. Preqin’s report was released in mid-September and contains the following statistics:
- $22.2 billion was invested in agriculture and/or farmland-focused private equity funds between 2006 and 2015.
- 90% of investors in agriculture and/or farmland are open to landowner-focused opportunities.
- Two-thirds of investors who prefer agriculture and/or farmland funds are interested in investing in agricultural technology.
Preqin’s study also revealed that the assets under management (AUM) in agriculture and farmland funds has steadily increased since 2013 from 18 unlisted funds with $1.6 billion in AUM to about 17 funds with approximately $9.5 billion in AUM. Although this number is relatively small compared to other types of alternative investments such as REITs, farmland investments offer several advantages that a growing number of investors find appealing.
A recent report by Morningstar Inc. indicates that the world’s population will grow to 9.7 billion from 7.4 billion by 2050, and most of this growth will happen in emerging markets. This presents a substantial opportunity for food producers to profit from this demographic trend.
Some examples of agricultural funds include the Black River Capital Partners Fund (FOOD), which has posted an internal rate of return of 9% and the Ag Real Value Fund, which has posted an internal rate of return of 15.6%. The VanEck (MOO) ETF has posted a more sedate return of 5.5% after losing 9% last year. (For more, see: Top 3 Agriculture ETFs.)