UK buyout firm launches rare agriculture fund
Jennifer Bollen
Financial News - 08 Mar 2010
UK-based SilverStreet Capital has launched a rare agriculture fund focused on South Africa in a bid to capitalise on a rising demand for food and the cheap cost of land in the country.
SilverStreet Capital, a private equity firm co-founded by a former fund manager at ABN Amro Asset Management, aims to raise $100m (€73m) to buy farms in South Africa.
SilverStreet said the fund, which has an upper limit of $300m, will officially launch next month and finish fundraising next April.
Using entirely equity as opposed to a substantial amount of debt common in private equity investments, it will buy farms growing produce including corn, wheat, soya beans, fruit and tea. It will also target aquaculture.
The fund will target institutional investors in Europe, particularly the UK, Scandinavia and Holland, according to Gary Vaughan-Smith, chief investment officer and a founding partner of SilverStreet.
He said the fundraising responded to increasing demand for food because of a growing global population. He said: “Agriculture companies will do very well in the next five to 10 years. Irrespective of what happens in the financial sector, growing food will be a good thing. Prices will rise.”
The world’s population will grow from about 6.5 billionn this year to almost eight billion in the next 10 years, according to data from research provider Chatham House.
Meanwhile, median commodity prices have risen in recent years, according to data from Bank of America Merrill Lynch. The median price of soya beans, for example, has grown from about 600 cents a bushel in 2000 to about 1000 cents a bushel this year.
Vaughan-Smith added the average cost of agriculture land in South Africa stood at about $2,000 a hectare in 2008, according to the most recent data available from Eurostat. The figures compare with about $22,000 in Germany, one of the most expensive countries for farmland. In the US, the average cost of farmland stood at about $5,000 per hectare.
SilverStreet’s fund, a signatory to a set of United Nations-backed responsible investment guidelines, will also look to support small-scale subsistence farms near its investments by training farmers to make their land more efficient and helping to find seed donations.
The fund is a rare example of South African private equity investment in agriculture, a sector that has attracted few dedicated buyout funds. Just 12 private equity agriculture funds globally finished fundraising last year, according to data provider Preqin. These funds raised an aggregate $1.45bn, compared to 16 funds that raised an aggregate $2.93bn in 2008 and 10 funds that raised a combined $5bn in 2007.
Just three agriculture funds focused on Africa finished fundraising between 2007 and last year, the biggest being Emerging Capital Partners' $523m vehicle. If successful, SilverStreet's fund would rank as the second-biggest in this category in recent years.
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