Specialist agriculture asset manager Growth Farms Australia has received early interest from SMSF trustees for its new investment trust.
The Australian Agricultural Lease Fund, launched last month, will acquire agricultural land and water rights and lease them to third-party primary producers.
The fund is open to wholesale investors with a minimum investment size of $100,000 and the asset manager expects it to produce an annual gross yield of 4.5 per cent.
It will have a maximum size of $100 million and maximum leverage of 30 per cent.
The closed-end unit trust has a term of 10 years, with unitholders able to vote on continuing or winding up the fund after five years.
Growth Farms estimates agricultural land values will appreciate by the consumer price index plus 2 per cent to 3 per cent over the long term, driven by increases in agricultural commodity prices and productivity gains.
“We’ve had quite a few inquiries from SMSFs, who are mostly self-directed, because it diversifies them – agriculture has very low correlation to traditional asset classes – and brings stability and risk management to their portfolios,” Growth Farms Australia managing director David Sackett told selfmanagedsuper.
“Increasingly, I think agriculture is being seen as an alternative asset class in the real asset bucket and also there’s been limited opportunities around.”
Sackett explained the fund was akin to investing in a commercial property fund.
“It’s a very similar model, so you go and buy property in the fund, you get the tenant in the commercial property who pays the electricity and maintenance, et cetera, you get the rental income and hopefully the commercial property goes up in value,” he said.
“We know that agricultural land goes up in value and that’s been one of the attractions as the productivity of the underlying land goes up all the time as we get new technology and see farmers getting better at farming – a hundred years ago we might have grown two tonne of wheat to the hectare and now we might grow four tonne of wheat to the hectare.
“So that underpins the land appreciation.”
Sackett also addressed investor assumptions about agriculture.
“Traditionally the risks in farming relate to weather and commodity prices, but this fund removes all those risks directly because the farm will be leased to another farmer, who takes on those risks and the volatility of the price of wheat, for example, so investors are indirectly exposed and largely insulated from those ups and downs,” he said.
“A lot of what we hear with agriculture in the media is the [struggle of farmers], but at the other end there are very good businesses and agriculture has had the highest rates of productivity gain in the Australian economy over the last 20 years.
“So the businesses we are targeting are very good business operators and quite different to what you hear on the news.”
He also commented on agriculture investment schemes typically being tax-driven.
“This fund is completely different; this is return-driven investment and traditional or mainstream agriculture, not some sort of wild idea in order to get a tax deduction and then it falls over three or four years down the track,” he said.
“This is low-risk exposure to agriculture by providing exposure to a large number of farms. This is very conservative as 93 per cent of the capital goes into land.
“The one thing people do need to think about is that it’s a 10-year fund.”
The fund also has an environmental, social and governance focus.
The offer will close on 30 September.
Growth Farms Australia was established in 1999 and currently invests in Australian agriculture on behalf of institutional, family office and high net worth individuals through separately managed accounts and unlisted funds.
It has more than $440 million in funds under management.
