The Royal County of Berkshire Pension Fund (RCBPF) has made its first investment in farmland, a £30m (€38.2m) commitment to two funds that own five working farms, with one fund investing in Australia and the other in New Zealand.

Milltrust Agricultural Investments (MAI) manages the funds, with RCBPF as the seed investor.

The MAI Buy and Lease Australia Fund and the MAI Buy and Lease New Zealand Fund, structured as open-ended Irish Collective Asset-management Vehicles (ICAVs), invest in established cashflow-positive farms, are leased to experienced lessee operators and are located in established agricultural regions.

They invest in farmland assets including permanent crops, arable and pastoral farms and water entitlements.

According to MAI, significant local currency depreciation against the US dollar and sterling means this is an optimal entry point for the proposed investments.

Nick Greenwood, pension fund manager at RCBPF, told IPE: “We’ve made the investment to diversify our real estate portfolio. But we see it as an income-generating asset reliant on the creditworthiness of the lessee farmer, rather than as an agricultural deal.”

He added that, as the global population grew, the assets of food and water were becoming key long-term investments for institutions.

The pension fund has 63,000 members working in the local authority sector within the county of Berkshire, and total assets worth £1.7bn.

Of this, £221m, or 13%, is invested in real estate, excluding the new investment.

The fund already invests in a US hydroponic farm, the AquaVenture Holdings desalination company, and National Pecan, a pecan grower and processor in the US.

MAI said that, on average, the farmland funds’ strategy aimed to achieve a steady rental income of 5-6% p.a. (gross), plus expected inflation-adjusted capital appreciation of 4-5% (real) p.a.

This compares with RCBPF’s income target for real estate of a 4% yield, which will convert to 4% real if income rises in line with inflation, and the underlying asset values also increase in line with inflation. 

“The novel thing with these funds,” Greenwood said, “is that the investment management fee is a percentage – 15% – of gross income after operating expenses, and not based on asset values.

“So the manager is heavily incentivised to make sure the farms are leased and providing as high an income as possible.”

MAI said it anticipated launching Latin American sub-funds at a later stage, with potential exposure to Brazil and Uruguay.

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