Nick Dignam from Fortitude Investment Partners shares insights with Lachlan Maddock from Fortitude Investment Partners on how a diversified portfolio in mid-market private equity is structured. The Inside Adviser
The world of alternative investments is at a crossroads. As markets defy expectations and liquidity concerns take centre stage, investors find themselves forced to rethink how they deploy capital in an increasingly complex environment.
Rare diversification and growth in emerging Agri Property fund
Specialist alternatives investment research firm Evergreen Consultants has released a research report on AAM Investment Group’s Diversified Agriculture Fund (ADAF), attaching a “Highly Commended” rating. This is the highest rating in the rating scale, meaning the fund has scored consistently very well across all areas of Evergreen Ratings’ research and analysis framework. As a result, the firm believes the AAM flagship fund has a very high probability of meeting its objectives, it has been assigned appropriate fees and has sufficient, high-quality systems and resources, including risk management and corporate governance, to manage an appropriate outcome.
The ADAF builds scale and diversity across Australia’s mainstream agricultural commodities – grains, lamb, beef and poultry. According to the fund’s website, it “acquires agricultural enterprises where management can create a platform for stable cash earnings and capital growth. ADAF seeks to provide its investors with exposure to a geographic- and sector-diverse, real-asset portfolio; currently ADAF owns or invests in mixed farming and pastoral assets in Queensland and New South Wales, as well as having a significant investment in AAM’s Southern Cross Poultry Fund.”
The fund’s primary aim is to “achieve a balance of income and strategic-style investments, anchoring on the achievement of key strategic areas, including unique assets at scale, strong industry fundamentals, supply-chain expansion and income and growth prospects.” ADAF’s performance objective is a quarterly distribution yield of 7 per cent-8 per cent and a total return at better than 12 per cent a year, over the entire life of this closed-end co-mingled unit trust. The investment timeframe is the remainder of the seven years initial lock-up period, plus three possible one-year extensions.
Income Investment
- Target investments that produce higher or stable distribution yield
- Operations either underpinned by long-term supply or offtake agreements
- Investments generally backed by significant infrastructure on real assets
The Evergreen Ratings Report says, “The overall assessment is that the ADAF has successfully mitigated a large proportion of risks within individual agricultural assets. By choosing to build scale beyond that of single-family owner-operators, the concentration of production assets within farming sectors and geographies allows the extraction of scale and newer efficiency benefits to be better utilised.”
Evergreen Ratings founder and CEO Angela Ashton says: “Although there may be several wholesale funds that target the agricultural sector, few could claim to be as diverse, either in also being the owner of the operating entity (rather than just a lessor/lessee arrangement), or across both sectors and geographies, as ADAF. We see this as a significant point of difference to other investments in the agricultural sector, which may provide stable capital for operational leverage, as it makes the focus on long-term, sustainable farming practices.”
The second major point of differentiation Evergreen sees in the fund is in technology development and adoption across the various business lines. “An example is the partially South Australian government-funded Tesla battery, matched to numerous solar panels on the roofs of the chicken sheds, which significantly reduced reliance on the electricity grid and costs,” says Ashton. “Investors who can get past the unique or cyclical risks often present in agriculture, by taking a wider view that they may not apply to the entire portfolio at the same time, will see the direct benefits of this product’s wide diversification.”
AAM Investment Group managing director and founder, Garry Edwards says, “We expect ADAF’s returns to be driven by property and operational asset growth, with investors owning equal proportions of each across poultry, grains, sheep, cattle and timber processing sub-trusts. Additional upside will be sought from the strategic acquisition of assets that bring economies of scale to our existing businesses, one-off production or technology benefits and the repositioning of production outputs into higher-margin products.
“In an era defined by global food demand trends that are transforming society as we know it, contributing to a positive and sustainable agriculture future for Australia is an exciting place to be,” says Edwards.
