Global pension funds flock to Australian farmland

Asian Investor | 3 May 2024

Global pension funds flock to Australian farmland

Global investors, led by pension funds from Canada, are significantly increasing allocations to Australia’s farmland sector despite its weak performance in 2023.

Research by The Weekly Times, an Australian rural news service, published on April 29, and shared with AsianInvestor, found the 10 biggest investors in Australian agriculture have currently allocated around A$24 billion in combined value as of the end of 2023.

Of the 10 largest institutional investors, five were Canadian with combined local assets worth A$12.5 billion.

Canada's PSP Investments, the $178 billion (C$243.7 billion) pension fund for Canadian public servants, is the largest single investor in Australia's agricultural sector.

According to the research, PSP Investments increased its allocation to the sector from A$6 billion to A$7.5 billion in the past year.

Joint investments by the Teachers Insurance and Annuity Association of America (TIAA) and College Retirement Equities Fund (CREF), another US fund providing retirement services in the academic, research, medical, cultural and governmental fields, increased from $2.2 billion in 2022 to $2.5 billion last year.

The latest data continue a long standing trend of increasing allocations.

“Investment by North American funds in particularly over the past eight years has just exploded,” James Wagstaff, editor of The Weekly Times, in Melbourne, who led the research told AsianInvestor.

He contrasted these allocations with relatively muted activity by Australian super funds.

“[Super funds] have tended to take a more short-term view of farming in Australia,” he explained, pointing to recent droughts and low commodity prices, which have provided challenges for agricultural production in Australia.

US-based Nuveen Natural Capital, which is owned by TIAA, manages the TIAA-CREF investments. In its third-party business, the company has seen more than $2 billion flow into its funds over the last five years, which currently stand at $12.4 billion of assets under management and 3 million acres, according to its global head Martin Davies.

VARIETY OF INVESTORS

“The new allocations have come from a variety of investors across Asia, Europe and North America, including Australian superfunds,” Davies told AsianInvestor. 

“As investors have looked to diversify portfolios in the search for returns uncorrelated to the economic cycle and meet net zero targets, natural capital as an asset class is looking increasingly attractive to clients looking to play a part in the shift towards creating sustainable food and fibre systems and reversing the decline in biodiversity,” he added.

The increases come after a disappointing recent return for the sector in Australia, and declining growth over the longer term.

The Australian Farmland Index, which tracks 61 properties with a total market value of A$2.05 billion, reported a -1.51% average return for the sector on a 12-month rolling basis in Q4 2023.

Since its 2015 inception, the Index has recorded an 11.29% annualized total return, with 5.15% from income and 5.93% from capital growth. However, returns have been declining, with the five-year average at 9.04% and the three-year average at 6.9%.

GLOBAL TREND

Increasing allocation to Australian farming mirrors growing allocations to the farming and related rural sectors worldwide.

“Investing in rural land is an example of how being a long-term investor allows us to invest in less liquid assets where that illiquidity can deliver enhanced risk-adjusted returns,” a spokesperson for NZ Super, the New Zealand Superannuation Fund, told AsianInvestor. 

Currently the fund has NZ$3.3 billion allocated to rural or timber investments and, at the end of the past three financial years 2021 to 2023, rural and timber investments have made up between 5% and 5.5% of the fund’s total portfolio.

Data from the US National Council of Real Estate Investment Fiduciaries (NCREIF) found that US agricultural farmland owned by the seven largest investment funds increased 231% between 2008 and the second quarter of 2023, and the total value of holdings grew more than eight-fold, to $16.2 billion.

But Wagstaff pointed to the appeal of the sector in Australia specifically for North American investors who dominate Australia’s larger allocations.

“The country offers greater scale than [investors] can find in North America or Europe. And with its western-style parliament and the familiar [legal] system, Australia is seen as a safe place to park your capital,” he said. 
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