TIAA-CREF unveils $3 billion global ag investment vehicle

The new fund will look for farmland in Chile, New Zealand and East European countries that are members of the European Union, like Poland, Minaya says.
Global Ag Investing | 4 Aug 2015

TIAA-CREF unveils $3 billion global ag investment vehicle

Listen to the entire interview with Jose Minaya, senior managing director and head of private markets asset management at TIAA-CREF Asset Management, here.

By Sarah Day Levesque and Gerelyn Terzo

Financial services provider TIAA-CREF, which oversees $869 billion in assets under management including $8 billion dedicated to farmland, is expanding its alternative investment platform. The firm on Aug. 4 revealed it reached financial close on TIAA-CREF Global Agriculture II LLC (TCGA II), a global agriculture investment partnership, with $3 billion in capital commitments, surpassing its target of $2.5 billion.

Jose Minaya, senior managing director and head of private markets asset management at TIAA-CREF Asset Management, told Global AgInvesting the oversubscribed status of the fund suggests the industry has turned a corner. “I think with this vehicle and what we’ve done is further sign of more interest in this space,” he said, adding that while investors are more comfortable with the asset class, institutional investor penetration is still small.

TCGA II will invest in “high quality farmland assets” across North America, South America, Australia and parts of Europe with a focus on major grain exporting regions. It is the sequel to TCGA I, which similarly reached oversubscribed status with $2 billion in capital commitments at final close. While the first investment vehicle was focused on the United States, Australia and Brazil, TCGA II will offer greater diversification with exposure to Chile and New Zealand, as well as Central and Eastern Europe.

TCGA II has already deployed $500 million, Minaya said, adding that its alternative investment platform is a consistent pipeline that only invests where the firm has people on the ground. “We haven’t stopped investing since 2007. It’s just in the form of creating collaborative vehicles for our capital to go and for everyone to benefit from the scale of that platform.”

TIAA-CREF looks at returns through a historical lens. Minaya points out that the NCREIF Farmland Index has historically been approximately 11 percent returns, comprised of an even split between income and capital appreciation. The fund expects to see returns in line with the future performance of the index.

“[In] natural resources you go through cycles of harsh weather or natural events. That ability in a model where you’re not directly exposed to the operation and you’re still clipping that coupon, more of a rent payment, has helped us manage our returns or volatility through different cycles,” said Minaya.

TCGA II received capital commitments from nearly two dozen U.S. and international institutions with long-term investment horizons for this asset class including return commitments from investors in the maiden agriculture fund. Investors include:
  • AP2
  • Caisse de dépôt et placement du Québec
  • Cummins UK Pension Plan Trustee Ltd.
  • Environment Agency Pension Fund
  • Greater Manchester Pension Fund
  • New Mexico State Investment Council
  • TIAA general account
“With its low correlation to traditional asset classes like stocks and bonds, farmland offers excellent portfolio diversification benefits for investors and a hedge against inflation,” said Minaya in a press release. “The macroeconomic fundamentals for investing in farmland are very positive and we view the launch of this new strategy as a testament to the ongoing potential and attractiveness of this asset class.”

Global Diversification & Scale

TIAA-CREF adopted a global theme in its approach to agriculture investing so as not to make a bet on any individual region or crop, which in addition to achieving scale is critical Minaya said considering agriculture is still an emerging asset class.

The strategy for TCGA II resembles that of the firm’s early days as an ag investor in that the focus is on farmland assets that predominately follow a lease model (which reduces volatility) only with a more global perspective.

Australia, for instance, provides exposure to a developed market in the Southern Hemisphere that offers more scale than can be achieved in the United States, where the market is more fragmented and competitive for land acquisition. Australia, however, is not as developed a market as the U.S. or Brazil from a tenant perspective, leading TCGA II to target a lower weighting down under.

“It’s a developed market; there’s that upside potential as the market matures from a tenant perspective, so we still want to get exposure to that region. But we balance and measure that exposure and we also balance it with some lease-type operating strategies,” he said.

Brazil, meanwhile, offers the greatest scale but there are hurdles in this emerging market, largely tied to the underdeveloped nature of the country’s ag infrastructure, which TIAA-CREF views as an opportunity. Rising food demand, for instance, leads to production increases, which translates to more land being converted to produce more crops. And the high precipitation in the country means a farm can produce twice the harvest that a U.S. farm can grow, which complements TCGA II from a diversification perspective.

Commodity prices in Brazil for items such as sugar, cotton and corn have fallen of late, but that does not upset the firm’s long-term investment strategy. “Recently we’ve seen opportunities to go in and buy assets at the targeted returns that we seek,” Minaya said.

Listen to the entire interview with Jose Minaya, senior managing director and head of private markets asset management at TIAA-CREF Asset Management, here.  
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