Who says the only investable assets are equities, fixed income or commodities? Not TIAA-CREF - the Teachers Insurance and Annuity Association has figured out that one of the arguably best fat tail investments has nothing to do with America's megabroken capital market structure, and is instead going back to grass roots... Literally. The FT reports that "TIAA-CREF, an asset manager, is ramping up its exposure to agriculture by buying a specialist investment firm, in an effort to double its activities in the emerging area of “real asset” investing. Westchester, in which the US pension fund has taken a controlling stake, manages about $1bn in assets and nearly 320,000 acres of farm land, as well as acquiring land on behalf of large clients. About 80 per cent of its holdings are managed on behalf of TIAA-CREF, one of the world’s biggest money managers." In other words, farms (or "real assets" as they are known in polite company) are about to become the next big bubble, and the "you have two cows..." joke is about to make a very violent comeback.
From the FT:
The deal will leave TIAA-CREF with more than $2bn in assets invested or committed to the agricultural sector, a total it aims to double over the next three years or so.
People close to the situation said TIAA-CREF had acquired 85 per cent of the company with an option to buy the rest in the future.
The asset manager is making its move as interest in agricultural investing rises. Investors are attracted to the sector’s supposed lack of correlation with traditional assets, such as stocks and bonds, and because owning real assets – physical entities such as land or property – is seen as a hedge against inflation.
Population growth coupled with the growing demand for food, as well as the energy and water required to produce it, are expected to support the value of farm land in the coming years.
Somehow we get the feeling Lloyd Blankfein's henchmen would not be very welcome in the plains states, yet at these rates of return, they may just be willing to risk it:
TIAA-CREF cites historical returns of 8 to 12 per cent from agricultural investing, evenly split between income from leasing land and increases in the value of land.
However, investment in the sector remains in its infancy. Estimates for institutional money invested in farm land range from $5bn to $15bn, according to TIAA-CREF, against thousands of billions of dollars worth of farm land globally.
“Institutional penetration is low right now,” said Jose Minaya, head of TIAA-CREF’s natural resources group. He said the company wanted to tap into increasing interest in the sector by enabling third-party investors to use its platform.
“We think that this is going to evolve in a similar way to real estate,” Mr Minaya said.
It's good to get confirmation that Marc Faber has been ahead of the curve (as usual) on this one.