April 24, 2014

Peter Roney
Managing Director, Cambridge Associates

Bridging the Investor/Manager Disconnect

Food and water are essential for life – so far we are all agreed, from then on it gets more complicated. Most of us agree that the increase in world population over the next few decades will significantly increase the need for more food. Furthermore, the growth in per capita income that is forecast is also expected to generate almost double the current demand for protein. Some of us believe that water scarcity may reach a crisis point in parts of the world in the next few years.

Against this background there are varying degrees of concern about the world’s food supply. The doom and gloom scenario postulates starvation on a wide scale with civil unrest and food riots. The optimists foresee continuing improvements in productivity, driven by new science and technology on existing and new farmland and a virtual transportation of water via global trade in agricultural commodities.

The reality will probably lie somewhere in between the extremes, but there may be two things that we can all agree upon; first, that this is a vitally important issue to address – and get right; and secondly, that it is unlikely to resolve itself without investment in resources and solutions.

Sovereign wealth funds have already expressed a keen interest in food security – not all of it totally welcome. Pension funds need long-term investments that generate returns, especially in the form of income, to fund a reasonable lifestyle for their beneficiaries in retirement. Endowments and foundations are in the main looking to sustain their organizations into perpetuity. High net worth individuals and family offices are increasingly looking to real assets to diversify their portfolios and protect their legacies for the future.

Given the above context it should be surprising to learn that the typical investment exposure to agriculture of these institutional investors is less than 1% of their portfolios. There are reasons for this disconnect. Part of the answer lies with the investors and part with the agriculture industry, but for the sake of us all and our descendants we need to bridge the gap. Government investment in agriculture will be insufficient and has the capability to introduce unhealthy distortions into the working of the marketplace. Institutional investment is necessary, and the good news is that it can be beneficial for those institutions – in addition to all of us that eat food and drink water.

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Peter presented "Bridging the Investor/Manager Disconnect" at the Short Course on Ag Fundamentals at Global AgInvesting 2014 in New York (April 28-May 1). This session in the conference explored the reasons for this disconnect, what can be done by both investors and agriculture funds and suggest a framework for a sustainable agriculture exposure.

The opinions expressed in this editorial are the author's own and do not reflect the view of Global AgInvesting.