TIAA-CREF aims to add to its $2 billion holdings of farmland to help diversify its portfolio and hedge against inflation, said the pension-fund manager's director for private-equity investments in agriculture.
“We don't have enough” farmland, Jose Minaya said on the sidelines of Terrapinn's Agriculture Outlook conference in London. TIAA-CREF, which manages about $417 billion in pension funds and is based in New York, expects its portfolio of agricultural property to generate absolute returns of between 8 percent and 12 percent, he said.
Global agriculture output must rise 70 percent by 2050 as the world population swells, boosting demand for farmland, the United Nations' Food and Agriculture Organization has said. By mid-century, planted acreage may need to expand 16 percent, provided historic trends in yield increases don't change, according to a study sponsored by companies including Monsanto Co. and published in March.
“We're actively in the market, still growing our portfolio,” Minaya said. “We're seeing opportunities, but it's very hard to scale up in this asset class.”
Agricultural land has “low to little correlation” with other asset classes, helping to diversify the investment portfolio, he said. It also provides a hedge against inflation, according to Minaya. About half of TIAA-CREF's expected total returns from farmland will stem from capital gains and the rest from operational returns, he said.
“Farmland is also a store of wealth,” Minaya said. “It's kind of like gold.”
TIAA-CREF owns agricultural land in the U.S., Australia, Brazil and central and Eastern Europe, most of which is leased out, Minaya said. U.S. real estate represents its largest farmland holding, he said. The pension-fund manager also has about $1.5 billion of timberland, according to Minaya.
Little data is available to analyze farmland's performance and risk as an asset class because of a lack of institutional investment, according to the director.
“The opportunities are a challenge,” Minaya said. “It's not a very efficient market. If you're doing it in a prudent way, it's really hard to say how long it will take to deploy” capital.
Farmland's low risk profile has started to attract investors, he said.
“Over the last decade or so, there have been other, better-yielding assets,” Minaya said, adding that before the credit crisis, investors would ask why they shouldn't invest in “a triple-A, double-digit-yielding CDO tranche” instead.
“Today you don't have to answer that question,” he said.