European pension funds are investing in global farmland, with a focus on emerging markets.
Allocations to farmland tend to be small — typically less than one-tenth of 1% of total assets. But pension fund officials like the investments for the low correlation to other asset classes and the targeted annual real returns of 10% or more.
And while earlier farmland investments were made directly, the more recent investments are being done through funds that aim to capture returns on crops, livestock or other agriculture products as well as appreciating land values.
Farmland is “one of the most interesting investment options arising in the past couple of years,” said Jelle Beenen, partner at Mercer LLC and head of its financial strategy group in the Netherlands. In a “very rough estimate,” Mr. Beenen put total Dutch pension fund assets in farmland at €2.5 billion to €3 billion ($3.4 billion to $4.1 billion); the total Dutch pension market is €740 billion.
Pension funds that have made global farmland investments include the €208 billion Stichting Pensioenfonds ABP, Heerlen, Netherlands; the €84.3 billion Pensioenfonds Zorg en Welzijn, Zeist, Netherlands; and the 206.5 billion Swedish kronor ($28.8 billion) AP Fonden 3, Stockholm.
Algemene Pensioen Groep NV, which manages assets of ABP, began looking into farmland in 2007 as part of a push for innovation at the money management firm, which manages €240 billion in total. APG has “a few hundred million” euros invested in farmland, primarily in Latin America, Australia, New Zealand and Eastern Europe, said Jos Lemmens, senior portfolio manager, commodities, at APG.
“Basically, the world is our farm,” Mr. Lemmens said. Choosing a country or region for investments “just depends on the specific project and whether the risk/return profile is right.”
He said farmland can be a better way of getting exposure to soft commodities, such as wheat or corn, because farmland returns are less volatile than commodity futures. Annual returns of 8% to 12% are expected on average, with some riskier countries and/or crops expected to deliver 20%, he said.