January 27, 2016

By Saif Shawqi, Shariyah Review Bureau

The Middle East is a leading hub for Ag investments globally. For years, the region has been presenting immense opportunities to many asset managers who have tapped its excess liquidity.

However, the players that are pushing Ag demand in this region are very different from those who are driving the demand in US and Europe.

In this article, we share Intel on what classes of institutions are most interested to invest in Ag so that asset managers can specifically target them.

1.   The Sovereign Wealth Funds (SWFs)

The regional flag bearers of Ag-investment are SWFs and government-linked institutions. Not surprisingly, a report published by FAO observes that the Qatar Investment Authority is probably the most active SWF investor in agriculture globally.

In 2011, the government of Saudi Arabia formed SALIC. They also started the King Abdullah Initiative for Agriculture Investment Abroad. Most recently SALIC invested C$250m for a 50.1 per cent stake in the former Canadian Wheat Board.

Abu Dhabi’s Al Dahra Holding company has a land bank of 200 thousand acres as well as pressing, production and milling plants globally. Qatar’s Hassad Food owns and operates hundreds of thousands of agricultural acres in Australia, Pakistan and Oman.

Based in Dubai for the past 5 years, Robbie Duncan, Vice President of Canada’s AGInvest, rightly observes,  “The MENA region’s agricultural appetite has been substantial and up to this point has been lead from the corporate arms of many of the sovereign funds.”

2.   Family Offices and High Net Worth Individuals

Real estate and agricultural lands are the most popular investments for the ultra-high net worth families, according to the latest research by international Family Office Stonehage Fleming.

Same holds true for MENA-based Family Offices. Germany’s Aquila Capital is among many asset managers who have successfully raised capital from Family Offices and SWFs within the region.

But why are Family Offices investing in Ag?

Family offices generally are conservative, risk-averse and they maintain a relatively long-term “macro” perspective; perfect fit for this asset class.

Diversification is another major factor. “Many investors in the region are heavily invested in local real estate and there is a general preference for hard assets. Hence, investors try to diversify and internationalize their exposure.” says Uwe Hellendahl, Managing Director of Germany’s Duxton Capital

Two types of Family Offices are shaping this demand.

Hellendahl of Duxton Capital observes, “There is the large single or multi-family office investor that has already taken a decision in principle that agriculture should be part of their strategic asset allocation and are looking for a good manager. These are usually the larger, internationally oriented entities with specialized sector-specific expert staff.”

“Then there is the single-family office or wealthy individual on the lookout for hard asset investments with a solid annual yield. Regular dividends i.e. yield-generating assets are a must for them and this is what agriculture can deliver”, shares Hellendahl.

Then there are the third market movers.

3.   Wealth Managers

In spite of real estate and international equities being their favorite asset classes, we discovered that many regional wealth managers have agriculture related investments in their portfolios.

“MENA based investors have been at the forefront of Agri investing in the post 2008 era”, notes Simon Hopkins, CEO of London’s Milltrust International.

In the past, big names like SEDCO Capital, Abraaj Group, Kingdom Holdings, Sidra Capital and Venture Capital Bank dominated the scene. But recent trends are expected to multiply interests in Ag offerings.

With the new lows in global stock markets and rising volatility in the real estate sector, stability is the need of the hour and Ag investments generally provide just that. It’s likely that there will be fresh capital inflow in the Ag sector and perhaps a new set of wealth managers will begin investing in this area.

The market is already reacting.

SEDCO Capital, the region’s major Islamic Wealth Manager, has recently launched a Sharia-compliant Agribusiness Fund.

Responding to the market trends, Kamran Butt, Managing Director said, “There is good appetite for agriculture investments in the MENA region which includes SWFs, institutions and HNW. Most of the investments previously were focused on food security during the last commodity Bull Run and focused on primary farm land investments.”

“At SEDCO Capital, we noticed that the focus is now shifting towards investing across the food value chain due to the preferred risk-return attributes of this strategy“, concludes Butt.
To conclude…

Many asset managers have success stories in the Gulf States, but it’s important to realize that Ag still remains a niche asset class. Most of the market players still are very little exposed to this subject.

Therefore asset managers have to kick start right from the beginning by:

 (1) Educating investors and spreading awareness about Ag as an opportunity

 (2) Start building trust in your company and yourself (Surprise: It takes time)

Saif Shawqi will be a member of the speaking faculty at GAI Middle East in Dubai, February 29 – March 2, 2016

The opinions expressed in this editorial are the authors’ own and do not reflect the views of GAI News.