Illinois SURS makes first farmland commitment, allocating $60M to Homestead Capital USA Farmland Fund III
GAI News has learned that Homestead Capital USA Farmland Fund III has secured a $60 million commitment from the $19.5 billion State Universities Retirement System of Illinois (SURS).
This investment, which was approved during the SURS Investment Committee meeting held on September 10 following a closed session presentation, marks the pension’s first investment in farmland, and in its first in Homestead.
Founded in 2012 in San Francisco, California, and with offices in Idaho, Illinois, and Arkansas, Homestead Capital has built and manages a vertically integrated portfolio of farmland across the U.S. that spans crops, lease types, operators, and regions.
“We think the Midwest, the Mountain West, the Pacific and the Delta represent the most compelling opportunities in U.S. agriculture over the next 10 to 15 years,” Gabe Santos, co-founder and head of acquisitions for Homestead, told GAI News in July 2015. “They also present us with great climate and crop diversification. Wherever we were going to own and operate land we had to have boots on the ground. We have identified a team of regional farm managers in all areas where we have strong footholds and networks.”
Focused on investing and operating farmland throughout the Mountain West, Delta, Midwest, and Pacific regions of the United States, Homestead has curated a team led by co-founders Gabe Santos and Daniel Little that has a deep well of experience in agriculture, financing, farm management, farm acquisition, portfolio construction, and risk management.
Partnering a “bottom-up” approach to sourcing and value creation, which is driven by Homestead’s locally engaged farmland managers, with a “top-down” course for portfolio construction and risk management, Homestead is able to deliver a properly diversified portfolio with an appropriate risk and reward profile.
Through an investment process that considers “labor, sustainable farming, and the environment”, Homestead is mindful of “…issues that relate to climate change and the scarcity of water” through its diligence and management. Using a proprietary software platform for modeling asset returns that accounts for yields, soil quality, climate patterns, commodity prices, and other factors, Homestead is able to manage concentration risk at the portfolio level, according to the firm’s website.
When asked about sustainability practices, Santos told GAI News in 2019, “The ones we employ are varied, depending on the type of farm we’re investing in. For example, water efficiency; we can deploy capital to make irrigation systems more efficient. More precise allocation of water can enable us to change crop rotation to a more profitable crop. Other sustainable practices we can use include variable rate of application of fertilizer, no-till farming and the use of cover crops.”
Homestead closed its first farmland fund in 2015 at $173 million with a portfolio of farms spanning 11 U.S. states producing 16 different crops, including cotton, rice, wheat, soybeans, tree nuts, apples, table and wine grapes, as well as citrus fruits.
Fund II followed, closed oversubscribed at more than double the size of Fund I at $400 million in November 2016. This fund tracked the same trajectory as its predecessor, pursuing investments in both row and permanent crop farmland across the Mountain West, Delta, Midwest and Pacific regions of the country.
Many investors from Fund I returned to make capital commitments to Fund II, as both funds attracted the attention of a varied field of institutional investors including a $100 million commitment to Fund II from the Oregon Public Employees Retirement Fund (Oregon PERF), which joined the $130 billion Washington State Investment Board (WSIB) and the $15.8 billion MainePERS fund in backing Homestead’s second fund.
Fund III is also building sizable commitments from pension investors. Along with Illinois SURS, existing investors in Fund III include New Jersey’s $70 billion public-employee pension manager, the New Jersey State Investment Council which agreed to commit $100 million in Homestead Capital’s third fund in 2019.