EUROPE - Pension funds are seeking out agricultural and commodity-related assets that offer diversification from traditional asset classes and superior returns to listed equities.
Gary Vaughan-Smith, founding partner at SilverStreet Capital said there was growing interest among European pension funds in private equity-type structures that offer steady income to investors, as well as a long term appreciating asset.
Vaughan-Smith, previously head of alternative investments at ABN Amro, set up London-based SilverStreet Capital with his former deputy, Alex de Costa, in the first quarter of 2007. The firm is set to launch its Luxembourg-domiciled Silverlands Fund, structured as a dollar-denominated SICAR, in January. It will focus on acquiring and developing agricultural businesses in sub-Saharan Africa.
Vaughan-Smith said he watched the subprime crisis unfold through 2007 and stood back as commodity prices soared through 2008. "Then they plunged 60% from their peak by the end of the year. That is when we decided that the speculative element had been taken out and there was a five to 10 year run to tap into."
The fund has a target of US$300m, some $100m of which has already been raised from European pension funds. "A lot of the biggest funds have an allocation specifically for agriculture," notes Vaughan-Smith. The fund will be geared operationally to rising food and commodity prices, but there is no financial gearing.
Among the various drivers behind the fund are the depleted levels of food inventories worldwide, growing populations in developing nations which will underpin demand, and the move to high protein consumption as urbanization continues. Global supply of arable land has only limited room for growth, while expert local management will boost yields.
The Silverlands fund also has a community dimension, linking its production and operational facilities to supporting small scale farmers near the fund's commercial agricultural holdings, in a hub-and-outgrowers structure which will help smaller farmers to access credit, production inputs and eventual distribution.
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