The Pension Fund of Japanese Corporations (PFJC), which manages several corporate pension plans, will soon be venturing into Australian farmland as part of its investment portfolio.
Through Macquarie Asset Management, PFJC will invest in farmland with various crops, such as wheat, beans, cotton and avocados on farmlands spread across eastern and western Australia.
“We find farmland to be an attractive investment strategy because the sector and the assets play an important role in all economies – and we have no investments in the sector now so it provides us with further diversification,” Yoshisuke (Yoshi) Kiguchi, chief investment officer at PFJC, told AsianInvestor.
Already 12 years ago, he was invited by an asset manager to look closer at the asset class. The investment cases recommended were in Australia and Brazil, but back then Kiguchi didn’t find farmland attractive and not yet “mature” for investment.
“Now, Australia’s farmland sector looks better and more ripe for institutional investments, with increased efficiency and automation. That is still not the case for Brazilian farmland,” he said.
PFJC manages capital from a combination of corporate pension funds, as well as endowment funds and one financial institution. The total assets under management was ¥130 billion ($1 billion) as of March 2023.
FITTING INVESTMENT MODEL
There are more than 200 fund managers investing globally in farmland alone, while the number of related funds investing in food and agricultural assets has increased to 802 funds with more than $125 billion in AUM, according to Valoral Advisors, an advisory firm specialized in the global food and agriculture investment space.
In the May 2022 report “Investing in the pillars of global agriculture”, Valoral Advisors stated there are different ways to get exposure to food and agriculture real assets and infrastructure assets.
“However, the most relevant ones are through direct investments, closed-end funds or alternative investment partnership models with other investors and/or asset owners/operators,” the report said.
These models are well-known within alternative investments within private markets.
As such, the model resonates with Kiguchi’s approach to investment, working, as he does, with an unusual portfolio construction with around 90% allocated to alternative investments. Likewise, the PFJC portfolio is around 90% allocated to overseas investments.
“We seek to get income-generated, steady returns from these farmland investments with a target return of 8% and above,” Kiguchi said.
The new farmland strategy is categorised within natural resources investments in PFJC’s long-term assets, which can accept a standard deviation of 18% to a certain asset type in the portfolio mix.
Among the mandates of the PFJC, Kiguchi has managed two since 2009 – those of Okayama Metal & Machinery Pension Fund and West Japan Metal & Machinery Pension Fund.
Since taking the reins of these funds in January 2009, Kiguchi achieved an average annualised return of 7.48%. In the fiscal year ending March 31, 2023 (FY2022), the annual return was 1.14%.
EMERGING ASSET CLASS
The rise of Australian farmland funds over the past two decades indicates the rising interest in Australian agriculture from institutional investors, according to an October 2022 whitepaper from Australian government-owned alternatives asset manager Queensland Investment Corporation (QIC).
“This growth in investment is a combination of traditional ‘diversified agricultural’ funds as well as a rising number of sustainable agriculture and ‘impact’ funds,” the whitepaper “Harvesting natural capital: An emerging asset class” said.
Kiguchi has also made a note of the sustainability and impact factors that follow as PFJC ventures into farmland investments, although it is not a primary focus of the investment.
“Generally, we believe farmland can contribute to the increase of our ESG commitment,” Kiguchi said.
QIC expects a more environmentally friendly approach to agriculture will assist long-term capital appreciation of assets, due to both improved asset productivity and resilience. Furthermore, consumer and investor preferences alike will lead to the global economy increasingly valuing sustainably managed agricultural assets.
“Australia is well-positioned to capitalise on its geographic advantage to service that demand, given the population growth and emerging demographics in Asia, and the demand for quality produce and food security,” QIC wrote in the whitepaper.
QIC did not respond to AsianInvestor’s enquiries about specific agricultural and farmland strategies in Australia.