Excerpt from Kelvins Tan's article on wealth portfolio divergence trends, first published by The Edge Malaysia
Business investments: Farmland as an asset
(TME) – Well-heeled investors looking to stabilise their portfolios in time of market volatility could consider investing in non-traditional asset classes such as farmland, agricultural commodities timber and hedge funds, whose prices generally do not move in lockstep with equities and other risky assets.
One rather illiquid but potentially lucrative investment, which is tangible and gives good yields, is farmland –one of the hottest asset classes of institutional investors of late. Indeed, many of the world’s biggest pension funds as well as family offices of wealthy individuals –looking for diversification and steady returns in times of market volatility– have been pouring money into farmlands. These assets, which generate regular income as well as capital appreciation and act as a hedge against inflation, have been popular with investors attracted to their non-correlated returns to those of stocks and bonds.
Peter Douglas, principal of GFIA Pty Ltd, a consultancy firm that offers wealth management services as well as research on alternative investments, says, “We have certainly found that physical agriculture such as owing farms has worked well, though it is hard to say whether current prices are attractive. I suspect that, for passive investors over the next decade or so, the objective will e to maintain value, not to find great wealth-enhancing investments.” Douglas, whose company also helps manage the wealth of a Singaporean-based family office, adds that farmland as an alternative asset class is still looking attractive despite the huge run-up in prices in recent years.
Farmland has good storage of value as well as attractive cash flow, and this compares favourably with gold, which has good storage value but negative cash flow, say Detlef Schoen, COE of Aquila Capital Green Asset and portfolio manager of a farmland fund called the Aquila Agriculture Fund, who is seeing institutional money moving out of gold and into farmland in recent years.
“The investment case for farmland remains strong, because it has all the positive attributes of core real estate assets, without being locked into the development and rental market cycles of buildings. Farmland supply is almost completely price-inelastic. Furthermore, the great global trends of expanding population growth, richer diets in emerging economies, diminishing farmland supply and environmental degradation of all interface with food production and underpin the investment case for agriculture for the foreseeable future,” Schoen tells Personal Wealth.
The Hamburg-based Schoen, whose fund owns direct farms in New Zealand and Australia, aim to generate cash returns and capital gains averaging 9% to 12% a year for his investors. The product, who minimum investment is €10 million, is available through the product platforms of some European private banks and is available only to high-net-worth investors.
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