The case for farmland as an asset for pension funds was put forward at the NAPF Investment Conference in Edinburgh.
Insight Investment chief investment officer, Abdallah Nauphal, said the debt crisis would continue to limit growth in developed markets, and that accommodative monetary policy with negative long-term real interest rates could lead to inflation, Instead, property, infrastructure, commodities, timber and farmland could all help protect against inflation and act as a store of value. Farmland also has a substantial income component Nauphal said, and would be supported by demand from emerging markets which will see rising populations. Farmland was also favoured by land constraints. He concluded that there is a lot of value to be extracted by investing in farmland.
BT Pension Fund Management head of strategy, Helene Winch, also looked at the case for farmland in a responsible and sustainable way, which she said was vital for large, long-term investors. BT has worked with several other large pension funds on a policy for responsible investment in farmland under the auspices of the United Nations Principles for Responsible Investment, in order to allay the concerns of nongovernmental organisations. Winch said farmland could help diversify and protect against inflation, but it was difficult to find the right assets. Agricultural equities had too much equity beta, while holding physical stocks was not attractive, and commodity indices were correlated to financial markets and had a US focus.
She said BT was considering owning farmland, which it could either farm itself, let to tenants, or lease – with letting to tenants being the most attractive option. A fund of funds was a good alternative. In terms of risks, crop failure, water scarcity and climate change were all factors, along with land ownership issues, and tax policy in some countries such as the US where government support provides a floor to land values. In terms of location, Winch said BT did not want to invest in Africa or frontier markets but was looking at Brazil, Canada and Australia.