(May 14, 2012) — TIAA-CREF, the New York-based financial services firm that oversees $487 billion, has announced a greater expansion into agriculture investing, establishing a new company devoted to the asset class.
With $2 billion in commitments to invest in farmland in the United States, Australia and Brazil, the firm’s new company, TIAA-CREF Global Agriculture, comprises a variety of international institutional investors.
“We see increased protein consumption in developing economies and alternative energy mandates driving increased demand for food, fiber and fuel from a limited resource – land. Direct investment in farmland provides access to the key driver of food production,” said Jose Minaya, managing director and head of global natural resources and infrastructure investments at TIAA-CREF, which manages approximately $2.5 billion in farmland. “In addition, we believe sustainable land management is imperative to help create value over the long term, and we employ best practices across our portfolio accordingly.”
Minaya added: “We believe farmland offers investors excellent portfolio diversification given its low correlation to traditional asset classes like stocks and bonds. Farmland also acts as hedge against inflation within a portfolio.”
The company, which began investing capital in April 2011, includes AP2, British Columbia Investment Management Corporation (bcIMC), and the Caisse de dépôt et placement du Québec (Caisse), among other institutions.
“This investment marks the Caisse’s entry into an emerging asset class, which will facilitate its exposure to the global demand for agricultural products,” Normand Provost, Executive Vice-President, Private Equity at the Caisse, said. “Farmland presents a risk-return profile that meets our depositors’ objectives and that offers portfolio diversification.”
According to TIAA-CREF, institutional investors own just 1% of farmland due to historically high barriers to entry, such as low liquidity, limited reporting and research and a large number of off-market transactions. “TIAA-CREF offers investors access to this important, emerging asset class through a sustainable, transparent platform,” said Anders Stromblad, Head of External Managers at AP2.
TIAA-CREF’s decision to expand more heavily into the asset class follows assertions made by Jeremy Grantham of Boston-based Grantham, Mayo, Van Otterloo & Co. (GMO), who asserted late last year that farmland and forestry will outperform the average of all global assets long-term. “For those with a long horizon, I am sure well managed forestry and farmland will outperform the average of all global assets,” Grantham said in a GMO quarterly report, noting that energy, metals and fertilizers will gain in 10 years.
In March 2011, Grantham wrote in GMO’s newsletter that since growth of natural resources is severely limited as population and demand soar, the age of cheap commodities prices is over. “The world is using up its natural resources at an alarming rate, and this has caused a permanent shift in their value,” Grantham wrote. “We all need to adjust our behavior to this new environment. It would help if we did it quickly.”