One of the most perplexing issues in relation to the investment environment for Australian agriculture is why the sector is so attractive to overseas investors, but is almost completely shunned by domestic investment fund managers. Developments over the past week have further highlighted this contrast in attitudes.
It has just been announced that the Danish pension fund Pensionskassernes Administration (PKA) is the principal funder of Sustainable Land Management (SLM) Partners, which has just completed the purchase of some 480,000 hectares of cattle farms in central Queensland. Tony Lovell, Director of SLM partners explained that the Danes are “very patient long-term investors with a 20 – 30 year approach.” This adds to the collection of overseas pension fund managers that have invested in Australian agriculture, which includes TIAA-CREF, a US teachers pension fund, which has also acquired farms in Australia. It is also understood that overseas pension funds are prominent investors in a number of Australian agricultural investment vehicles.
In contrast, Australian institutional fund managers are noticeably absent from the agricultural investment market in Australia, instead preferring to invest heavily in the share market. This has been noted in OECD comparisons of national pension sectors, which have identified that Australian superannuation fund managers have the highest level of exposure to the sharemarket of any pension sectors globally, as the following graph highlights.
A renewed warning about the high reliance of Australian superannuation fund managers on investments in the sharemarket has been provided by Oaktree Capital Chairman Howard Marks, who is reported to have challenged Australia’s superannuation industry to rethink its love affair with shares and warned that a “day of reckoning” for stocks is inevitable. Investments in agriculture are an obvious alternative to the sharemarket, and many studies have identified that agriculture as a sector often provides a counter-cyclical risk management option for investors.
It has often been postulated that the reasons Australian superannuation fund managers are so fixated on the sharemarket is that it provides a highly liquid investment option that can be traded in and out of on a regular basis, along the way generating fees for investment fund managers and enabling bonuses etc to be readily calculated. It also seems often to be a case of ‘herd mentality’ in that if everyone else in investing heavily in shares, then staying with the herd lessens the risk of performing badly compared to the herd – even if over the long-term the alternative might produce better results.
This issue will be the focus of discussion at the forthcoming “Funding Agriculture’s Future” conference being held by the Australian Farm Institute in Canberra on June 3rd and 4th.