Updated with correction.
Private equity and venture capital firms are going down to the farm, moving into the agribusiness and agriculture technology sectors in a big way.
The smallish sector is gaining steam as asset owners seek investments that provide current income as well as returns. While private equity firms previously have invested opportunistically in agriculture and agribusiness out of their main funds, a growing number now are raising funds dedicated to the sector.
This year, some 33 private equity-focused agriculture funds are seeking to raise a combined $8.5 billion, according to London-based alternative investment research firm Preqin. These funds are managed by natural resources managers as well as private equity and venture capital firms. Three agribusiness funds closed this year on a record total of $3.4 billion, already exceeding the $2.7 billion raised by 14 funds in all of 2014.
The $8.3 billion Rhode Island State Investment Commission, Providence, and the $14.6 billion New Mexico Public Employees Retirement Association, Santa Fe, are investors in the $893 million fourth fund of agribusiness private equity firm Paine & Partners LLC. The fund was oversubscribed, with only five months between its first and final close.
Some investors are banking that agribusiness will perform better over the long term than farmland, hurt this year by returns falling below real estate in general as reflected by the NCREIF Property index. Private equity and venture capital firms are hoping the growing worldwide need for food will turn agribusiness into a return bonanza.
Growth in the sector is an unintended consequence of disruption by private equity and venture capital firms in the so-called “big food” industry — long dominated by companies such as Kraft Foods Group and Campbell's Soup Co., grocery store owners and fast-food restaurant chains, said Mark Kahn, founding partner of venture capital firm Omnivore Partners, which invests in agriculture technology.
But what really piqued private equity executives' interest was a “unicorn,” a startup company valued around $1 billion, said Mr. Kahn, who is based in Bangalore. That was Monsanto Co.'s $930 million purchase of The Climate Corp., a venture capital-backed company offering weather insurance for farmers.
The sector is gaining enough heat that a debut fund from Agriculture Capital Management Permanent Crops LLC, the food and agriculture arm of Portland-based sustainable investment real asset firm Equilibrium Capital Management, received commitments from the $12.6 billion Maine Public Employees Retirement System, Augusta, and $106.8 billion Washington State Investment Board, Olympia, for its first fund, which has a $250 million target.