Farmland and the current investment climate
Under current market conditions, many investors are seeking alternative asset classes to boost returns without dramatically altering their overall risk profile. Current markets are characterised by:
- Price volatility in mainstream asset classes and the emergence of a risk-on / risk-off trading environment.
- Government intervention in markets becoming the primary driver of asset prices, making fundamental investment analysis and traditional portfolio management decision making more challenging.
- Unusually high levels of positive correlation between traditional asset classes and their sub components.
- Uncertainties over valuations due to low levels of visibility with respect to the global economy.
- Concerns over future growth potential in developed economies in view of issues with competitiveness and enforced or voluntary austerity due to high levels of private and government sector debt.
- Emergence of risk and socio-political uncertainty in markets considered more predictable pre-2008 (e.g. Euro area and China).
- Concerns over inflation in light of quantitative easing (increases to the money supply) in many economies, unsustainable government debt burdens requiring inflationary solutions and competitive currency devaluation.
- Lower or negative ‘risk free return’ on cash and government bonds due to historically low interest rates and central bank bond buying programs and other policy actions that are artificially driving depressing yields.
- Concerns over price levels in higher yield bonds and income yielding instruments in general.
As a result, many investors are now looking for alternative investments with the following characteristics:
- ‘Real’ or ‘hard’ assets that provide lower risk to capital.
- Greater return than traditional fixed income strategies to replace lost “risk-free” income.
- Low or negative correlation to traditional asset classes such as stocks and bonds and to mainstream alternative investments such as commercial real estate and hedge funds.
- Superior performance in an inflationary environment (to mitigate inflationary risks from low interest rates, quantitative easing, commodity driven inflation etc).
- Good long-term fundamentals to support capital growth in an investment environment where economic and valuation uncertainty are at historical highs.
- Simple, secure investment structures, preferably involving direct ownership of the underlying asset.
Direct investment in farmland has the potential to provide all of the above features. This has resulted in rising interest from the investment community in recent years, although the asset class still represents a tiny (if any) proportion of most investors’ portfolios.
Historically, the sector has been dominated almost entirely by agricultural buyers with the relatively small number of investment buyers having had very little impact on demand. If the trend of rising demand from professional investors continues it will provide meaningful additional support for farmland values in the coming years. Clearly, early movers will stand to benefit.
Click here to see our Downloads Section for a more in-depth look at the fundamentals we see driving the agricultural asset class in the coming years.
Alternatively, please contact our Swiss head office on +41 44 20 55 970 and we will be happy to discuss your requirements directly (investors from Australia and New Zealand should contact our Australian office on +61 86 22 52 231). If you would prefer us to contact you, please click here to complete thecontact form and we will be happy to have the appropriate member of staff call you to begin discussions on a strictly confidential basis.
Farming is like any other business: all other things being equal, income is dictated by the quality of the management team. Even enterprises with similar soil, climate and business model can show a high degree of variance. This means tenant / manager selection is a critical component of the agricultural investment process.
Inefficiencies in the farmland pricing mechanism are one of least exploited opportunities to increase returns as a farmland investor. When it comes to buying agricultural assets, we are able to help our clients beat the market because of our unconventional approach to acquiring farms and the information advantage we have in the markets in which we specialise.
Investing in Australian agriculture
Australia’s robust economy, strategic location and investment friendly business environment have made the country one of the world’s top destinations for foreign investment, with FDI inflows of over twice the OECD average (% of GDP basis, 2011).
Geographic and sector focus
For investors, the choice of agricultural sector will be driven by your risk tolerance and overall investment objectives. As a general rule, arable agriculture (i.e. the cultivation of annual crops, in particular grain) is the least volatile farming sector.