Agrifirma scraps hedge fund-style fees

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Financial Times | 9 March 2009

By James Mackintosh

Agrifirma Brazil, a farm fund backed by Lord Rothschild and Jim Slater, the former corporate raider, is scrapping its hedge fund-style fees to make it easier to attract investors.

Agrifirma, which owns more than 100,000 acres of Brazilian farmland, plans to restructure itself as a Jersey company, paying salaries and bonuses to managers rather than an annual 2 per cent fee plus 20 per cent of profits.

The move may mark the beginning of the end of a widespread shift over recent years towards hedge fund-style fees, which saw businesses ranging from specialist lenders to stud farms put into fund structures charging “two and 20”.

“It’s not an effective way to raise money right now”, said Ian Watson, chairman of Agrifirma. “When we go back [to investors] we would rather not have the burden of a two and 20 structure.”

The change will mean payments to Agrifirma’s managers are approximately halved, assuming targets are met.

Hedge funds themselves have started to cut fees in reaction to heavy investor withdrawals and increased demands from those clients willing to remain.

Romek Pawlowicz, co-founder of Orthogonal Partners, a £100m specialist investor in alternative funds, said it was becoming easier to negotiate over terms.

“Managers are more accommodating because money is so hard to come by nowadays,” he said.

Agrifirma raised $154m (£111m) last year from Lord Rothschild, his listed family investment vehicle, RIT Capital, Mr Slater and other investors. It is not currently planning a large round of capital raising, but hopes to list eventually on London’s Aim.

The company is one of dozens set up to exploit a predicted rise in food demand as emerging market consumers get wealthier.

Agrifirma was created after Mr Slater – whose bank, Slater Walker, collapsed in 1975 – and Mr Watson voluntarily liquidated Galahad Gold, a venture they began in 2002 to invest in precious metals via early-stage miners. Galahad began winding down in late 2007 after a stellar five-year run, with the pair concluding metals prices were too high.

“When people in developing countries get more money, the first thing they buy isn’t a widescreen TV, the first thing is more meat,” said Mr Watson. He said the investment strategy remained solid as China, which needed to import food, was still growing in spite of the global financial crisis.. But he admitted it would have been better to launch a year later than it did.

Agrifirma’s board includes Lord Wolfson, former chairman of Next, Peter Stormonth Darling, former chairman of Mercury Asset Management, and Roberto Rodrigues, a former Brazilian agriculture minister whose son is chief operating officer.

Like other farmland funds Agrifirma is buying up land and investing in it with the aim of raising yields.
Original source: Financial Times
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