Farmland has long offered good returns with relatively low risk. Now an innovative investment vehicle offers a better and more ethical option for investors
The credit crunch of 2008 and the subsequent recession affected almost every part of the British economy. As homeowners found mortgages difficult or even impossible to obtain and businesses complained about the problems they faced getting essential financing from banks and other lenders, the problems of one sector – agriculture – were largely overlooked.
Since 2008, as financial markets first entered turbulent waters, the amount of UK farmland for sale almost dried up as the asset class became a popular safe haven. Now investors wanting to invest are likely to discover difficulty in accessing available farmland for sale, especially in the light of Savills announcing they alone boast a collection of buyer applicants estimated to be equivalent to 10 years of current supply.
Savills World Research says: “The overall availability of farmland remains historically low and inevitably supports market values. Factors, such as potential increases in interest rates and subsequent debt servicing problems, which may increase supply, don’t appear likely to impact in the short term.”
As a specialist lender, Agri Partners provides a range of structured farm finance solutions exclusively for the UK farming sector
Farmland categorised by Savills as an “investment safe haven” is an asset class with a growing appeal; farmland has great potential for forward-thinking investors. Population growth, resource scarcity and climate change are the three defining trends of modern times, and all three are inextricably linked. Over time, as their impacts converge, the effects on the global economy will become progressively pronounced. Agriculture, and by extension farmland, is positioned at the nexus of this convergence.
Yet on the supply side, the supply of land is static, and could even fall due to the effects of climate change and the need for increased housing. All this suggests that the food price spikes of 2008 and 2011 are an indication of things to come.
According to the Knight Frank Farmland Index for the second quarter of 2015: “The average price of bare agricultural land in England rose by 2.6 per cent between April and June 2015, the tenth consecutive quarter of growth… values have now risen by 33 per cent, or £2,050 per acre, since the end of 2012 and now stand at a record high of £8,265 per acre. Over the past ten years prices have almost trebled, a far stronger performance than many other asset classes.”
However, despite the impressive performance, the Basel III requirement for banks to increase their capital and liquidity ratios meant banks were and still are just as unwilling to lend to agricultural businesses that do not meet their more stringent serviceability criteria; given farming is mainly seasonal, this poses a real issue for many small and medium sized enterprises.
To meet the needs of those looking to invest in farmland and at the same time to help fill this debt funding gap, Robert Bourn, an experienced agricultural investment manager, began to look at how to create a more innovative, holistic approach.
Last year he established Agri Partners, a specialist agricultural real estate and mortgage investment business. As a specialist lender, it provides a range of structured farm finance solutions exclusively for the UK farming sector. These structured farm finance solutions are evaluated with asset-based standards rather than the new criteria used by banks and other credit institutions. It might be essentially conservative, but this collateral-based approach opens up opportunities for more agricultural borrowers to obtain the finance they need and allows them to borrow at lower rates than the volatile nature of their business has previously allowed.
“Although we deal with a wide range of property investments, we’ve often been asked by our clients for a means to gain exposure to farmland investment in a way that minimises their risk and doesn’t involve trading in commodities” says Richard Shepherd-Cross of Custodian Capital.
“We believe that the UK agricultural sector represents a unique market opportunity and farmland in particular has been one of the best performing asset classes over the short, medium and long term, with prices continuing to rise. We’ve therefore worked closely with Agri Partners to develop attractive and socially responsible investment propositions, which have been well received by our clients.”
By virtue of finance being funded through private funding syndicates, investors have an opportunity to participate in the consistent, uncorrelated returns realised through secured loans, while using tried and trusted origination channels, experience and track record within the sector.
The syndicates target a net return of 8 per cent a year using a combination of fixed income and capital growth in farmland values. Risk of capital is also managed because the investment is underpinned by UK farm real estate. And as uncertainty continues to provoke market volatility, the syndicates have the additional benefit of being uncorrelated to the wider financial markets.
Although aimed at professional investors only, the firm is finding that high-net-worth individuals are among syndicate investors who have invested through their wealth managers. Pension funds, corporate investors and charities are also welcome to invest.
The Agri Partners team also believe that unlike traditional equity models, which can end up putting investors in competition with farmers looking to buy farmland for themselves or can result in investors rather than those farmers owning great swathes of the countryside, their approach is more ethical.
Timing is also key to successful investing and here too Agri Partners believe they are ideally positioned. They point out that they are in the early stages of an investment boom in agriculture, driven by a unique set of fundamentals which offers a compelling case for early-movers.
As a growing number of investors are discovering, Agri Partners Private Funding Syndicates offer a compelling means by which to achieve exposure to these exciting, fast-moving trends.
To learn more about farmland as an asset class, Agri Partners offers readers free access to its agricultural investment and credit research reports, which can be downloaded from www.agripartners.co.uk/research
If you are an investor and wish to explore this niche investment in more detail, contact Agri Parters by telephone on 0203 289 6800 or by e-mail firstname.lastname@example.org