Institutions used to dig agriculture. They saw it as an inflation hedge. Real asset managers hitched their wagons to the farmland market. However, inflation stayed low to non-existent between 2010 and 2020. Returns underwhelmed. And the asset class fell out of favor. Now inflation is roaring at historic levels. Farmland, not surprisingly, is getting another look. Only this time around, interest is coming from a new crop of sophisticated investors.

“Family offices have entered the farmland space in greater numbers, doing deals outside of the usual GP/LP framework,” explains Peter Martenson, global head and managing director, Eaton Partners.

Interested? Then put on your overalls and prepare to get your hands dirty because farmland is among the asset management industry’s most challenging categories. Even for the nimblest of private funds, pickings are slim and deal access is limited.

Globally, an estimated 80 percent of available acreage is held by individuals and families. In the U.S., about $100 billion worth of farmland changes hands each year, but an outsized portion of those properties remain within families. Most of it involves rented/leased lands. It’s a high-maintenance business that requires extensive operational expertise. It’s not getting up at 4 a.m. and milking cows, but, rather turning over wide swaths of terrain, sourcing deals, getting appraisals and doing due diligence on soil and irrigation –labor intensive endeavors, explains Carter Malloy, founder and CEO of Fayetteville, Arkansas-based land investment company AcreTrader, a platform that Barron’s likened to “the Charles Schwab of acreage.”

More wealth advisers and family offices are indeed pursuing private farmland ownership these days, confirms Malloy, a former analyst at investment bank Stephens Inc. and who grew up in a farming family.

Carter Malloy, AcreTrader

“It’s hard work to do these deals at scale,” Malloy says of a market that suddenly is getting a ton of attention.

That’s due to the Russia-Ukraine war which has driven up prices for corn and wheat amidst supply concerns.

The largest, best-known farmland manager in the institutional space is Nuveen LLC, a subsidiary of Teachers Insurance and Annuity Association of America (TIAA). As of September 2021, Nuveen manages nearly $8 billion in farmland assets, representing 2 million gross acres, globally.

Nuveen also has a strategic relationship with a sustainable agribusiness manager, AGR Partners, also a TIAA subsidiary, and which invests $600 million in about dozen portfolio companies such as Treehouse (value-add almond processing), Titan (vertically integrated peach cultivation) and Opalfoods (specialty egg producer).

Nuveen’s first open-ended farmland fund, launched in 2019, set out to raise $2 billion and included investors such as the Vermont State Retirement System which committed $100 million.

The ag fund being relatively small (versus, say, the typical infrastructure fund, often in the neighborhood of $15 billion) was deemed attractive, a VSRS pension fund official said at the time, while underscoring the primary motivation for the allocation – to hedge inflation.

The Nuveen fund targeted high single-digit returns with expected volatility in line with investment-grade corporate bonds and negligible correlation to equities in terms of standard deviation.

As of 2020, Nuveen reportedly had raised only about one-fourth of its $2 billion target. Assets were going to be locked up for three years. Dimitrios Stathopoulos, Nuveen’s main point person for farmland investing, did not respond to requests to be interviewed.

Last summer, Nuveen’s CEO Jose Minaya boasted to CNBC of a push into California walnut farming. It’s been in the news lately – as skyrocketing shipping costs have crushed Sacramento farmers who depend on exports to China.

Among some farmland specialists – all of them conspicuously quiet these days – are Ceres Farms, Fiera Comox Agriculture, International Farming Corporation (IFC) and UBS Agrivest.

Additionally, there are several middle-market private equity firms that are associated with farmland, including Proterra Investment Partners, Agis Capital, Arable Capital Partners, Valoral and Sunridge Partners.

Not one of these firms responded to interview requests.

No new funds have been announced. We looked. No “Ag Fund II” launches are in the news. Proterra reportedly put $400 million worth of the Australian farmland it owned up for sale. That was back in March.

Eaton Partners’ Martenson, who heads the firm’s GP Advisory practice, says interest among pension funds has diminished, but a new cycle of inflation likely will start to reenergize the sector.

“We’ll start to see large investors once again embrace areas such as farmland, timberland, infrastructure, etc.,” he predicts.

Brendan MacMillan, CIO, QP Global Family Offices, says he is approaching farmland across two distinct time horizons, short- and long-term.

“It’s actually a seller’s market right now,” he says.

Spiking per-acre prices, rising interest rates and overall economic uncertainty could make for a tricky entrée into row crops, looking out two years.

However, looking at the next seven to 10 years, MacMillan is bullish on northern U.S. and Canadian farms, particularly if average temperatures continue to go up, potentially impacting the viability of core Midwest farmland.

Most farmland transactions in the U.S. are in the range of $1 million to $10 million, explains AcreTrader’s Malloy. (By way of contrast, consider the average Nuveen farm deal investment is about $20 million.)

Eaton Partners’ Martenson, who heads the firm’s GP Advisory practice, says interest among pension funds has diminished, but a new cycle of inflation likely will start to reenergize the sector.

“It is not easily done at scale and there is limited transparency,” Malloy says.

Private sales of farms in the U.S. usually involve family offices and wealthy individuals investing directly, according to Martinson.

He mentioned two specialist firms doing relatively small, direct placements these days.

Halderman Farm Management Service Inc. is located in Wabash, Indiana. The firm has about $1 billion in assets, representing ownership of 250,000 acres across 650 farms in 18 states, according to founder/CEO Howard Halderman’s LinkedIn profile.

Another such player is Spencer, Iowa-based Midwest Land Management which specializes in farmland real estate and manages farms in the Midwest, primarily in Iowa.

As far as trends, Zach Anderson, Midwest’s head of sales, says the current state of the market is “hot but not overheated.”

He confirms family offices are entering the space but points out that they remain a relatively small pocket of players. Local interests represent roughly 60 percent of the buyers with high-net-worth individuals most heavily involved in the space, Anderson says.