AreaOne Farms Fund III reaps harvest in $130 mln close

AreaOne Farms wrapped up its third farmland private equity fund, raising $130 million thanks to institutional investors seeking initial access to agricultural assets.

AreaOne Farms Fund III exceeded by 30 percent its $100 million target in a close last month, Joelle Faulkner, president and chief executive of AreaOne, told PE Hub Canada. The fund secured 4x the combined total raised by its two predecessors over 2013-2014.

The Toronto firm achieved this by signing up more limited partners, including first-time institutional backers. Three Canadian institutions — an endowment, an insurer and a pension fund —  joined AreaOne’s existing LPs, mostly wealthy investors.

AreaOne updated Fund III’s target early on due to enthusiasm shown by institutional LPs. Several of them recently created farmland allocations and were looking for a market-entry point, Faulkner said. She hoped to meet the $100 million goal by tapping into this demand.

Fund III did even better for a variety of reasons, Faulkner told PE Hub Canada.

They include macro factors, such as market volatility, which favours alternative assets, and rising commodity prices, she said. Farmland investing also promises long-term, uncorrelated returns with a stable income and appreciation component.

Faulkner says LPs were also drawn to AreaOne’s “shared-value” investment model. Designed in 2011 by Faulkner and her brother, Benji Faulkner, it aims to help owners of family farms scale operations and transfer ownership to the next generation.

AreaOne partners with producers in a 10-year joint venture. The firm provides most of the equity for acquiring new land and invests in equipment, land improvements and conversions, and research. Operators share in the earnings and in the 10th year are able to buy the expanded property.

Joelle Faulkner, President and CEO, Area One Farms
Joelle Faulkner, President and CEO, Area One Farms

Faulkner says this approach, which puts the onus on sustainable farm ownership, runs counter to the sale-and-leaseback model other investors use. It also encourages alignment among the parties.

“AreaOne’s strategy ensures that everyone, investors and operators, share in the return and have an incentive to build long-term value,” she said. “This is the guiding principle for all decisions, from finance to fertilizer.”

Staying the course

Fund III will maintain this strategy, which has so far backed nine Canadian family farms overseeing some 80,000 acres of agricultural land.

With a much deeper capital pool, the fund “will do more,” Faulkner said. She expects to launch joint ventures with 10 to 15 crop and cattle producers in Alberta and Ontario.

Fund III will also invest in new initiatives to enhance the profitability of joint ventures. They include research into regenerative farming techniques, testing of a farm-data-management system, and the introduction of group-buying of inputs to achieve economies of scale.

To support this effort, the firm has doubled its personnel. The new hires were added mostly to the farm-development team, led by Jordan Webber, whose Brownfield, Alberta, family farm partnered with AreaOne two years ago.

AreaOne’s success on the fundraising trail mirrors a global trend.

In April, Preqin reported that more than 100 unlisted agriculture and farmland funds collected about US$23 billion between 2008 and year-to-date 2017. Institutional LPs, such as pension funds, endowments and foundations, are driving demand.

Canadian pension funds are especially active in the space, investing directly or through funds. They include Canada Pension Plan Investment Board, which set out five years ago to buy tracts of farmland, initially in North America.

However, Reuters recently reported that CPPIB may be getting out of farmland investing. CPPIB decided against making further acquisitions and is open to selling existing holdings because opportunities are not sufficiently scalable, the report said.

CPPIB also met resistance from farmers and public policymakers concerned about takeovers of local assets. In Saskatchewan, new rules were enacted in 2015 to limit institutions from buying farmland.

Canada’s Senate is currently studying the issue and its potential impacts on agricultural production and food supply.

Photo of combine harvester courtesy Avalon_Studio/Vetta/Getty Images

Photo of Joelle Faulkner courtesy of AreaOne Farms