November 2, 2020

By Michelle Pelletier Marshall, Global AgInvesting Media

Global AgInvesting (GAI) hosted its 10th annual Global AgInvesting Asia conference last week. Originally set to take place in Tokyo, but due to current pandemic conditions, the event was held virtually. With speakers from Westchester Group Investment Management, The Norinchukin Bank, Hancock Natural Resource Group, Nishimura & Asahi, and many more prominent global companies, international investors gathered to hear about ESG, SDGs, natural capital, and responsible investing strategies, and network with multi-national fund managers, agribusinesses, private equity and venture capital fund managers, and more.

Below, we provide the transcript from the “Executive Interview with Mitsui & Co., a Pioneer in Ag Investing”, which was the first session of the event, led by Greg Mellinger, CEO for HighQuest Group, GAI’s parent company.

Q1).

Greg Mellinger, HighQuest Group [GM] (on right in photo): Allow me to express my gratitude to Global Investing Asia’s delegates, including so many prestigious investors. I would also like to acknowledge the GAI Asia sponsors, without whose support GAI Asia would not be possible. Thank you for joining us for our 10th annual Global Investing Asia conference. It’s so hard to believe that we have already met this important milestone, and that the relevance of agriculture and food investing only continues to grow.

I am honored to lead off the GAI Asia conversations and have the pleasure of interviewing Mr. Ken Hori, representative director and senior executive managing officer of Mitsui & Company. Ken is responsible for leading Mitsui’s basic materials, performance materials, nutrition, agriculture, and corporate development business units. The diversity of Ken’s role mirrors the diverse nature of Mitsui itself. For those unfamiliar with Mitsui, its origins go back hundreds of years in Japan, though its modern form began in 1947. It is one of the leading general trading firms or sogo shosha, and has significant expertise and assets devoted to commodity supply chains globally, including in agriculture and food-related products. In the last few decades, M&A investments have resulted in a portfolio of hundreds of subsidiaries and group companies. In recent years, these investments have included allocations into funds and asset managers, including those related to agriculture, food, agtech, and food tech.

Today’s conversation will explore Mitsui’s pioneering role in adapting its business model for today’s opportunities. Allow me to welcome welcome Ken. It’s great to see you. Even though I’m here in the Boston area, and you’re there in your beautiful new building in Tokyo. So Ken, would you please start out by explaining your role and the business activities and functions you oversee that pertain to agriculture and nutrition, food, ag tech, etc.?

Ken Hori, Mitsui & Company [KH] Thank you, Greg. It’s really good to see you. It’s a privilege to be on this session. We are very appreciative of the long relationship we have had with HighQuest, and thanks for putting this together.

Let me talk a little bit about Mitsui and myself. Mitsui is a trading and investment company that interacts with many industries, as some of you might know. I am currently in charge of Mitsui’s businesses in nutrition and ag, and a wide portfolio of chemicals and downstream products for application materials. I’m also in charge of Mitsui’s corporate development activities, which includes private equity types of businesses, financial investments in various assets, and commodity derivative trading as well. I also chair Mitsui’s Portfolio Committee, which is always an interesting and challenging job.

Q2).

[GM] So Ken, this year has been such a remarkable year because of COVID-19, and the pandemic has affected every agricultural and nutrition and food type of business throughout the year, from March onward. What was the impact on Mitsui’s portfolio and how did Mitsui adjust to the rapidly changing situation?

[KH] COVID-19 has been the most significant global event that we have ever seen in terms of its continuing damage inflicted on everyone, and as well as its accelerating effect on some of the key underlying trends in many business areas, including nutrition and wellness, and in large, the food industry. For Mitsui, since we have a diversified portfolio, we have had negative effects. But we also have areas where business has been resilient. Food and agriculture seem to to fall into that category of resilience.

To provide some perspective, we have started to notice a clear trend in the scenery that we have access to in our business world. As you may know, Mitsui is the largest shareholder of a premium healthcare provider in Asia. And this company — called IHH Healthcare — is also at the frontline in the battle against COVID-19. It is really important that the healthcare ecosystem act as one to take on a global pandemic of this magnitude. Through all this, through what we’ve observed, we now see a clear trend for both the general public and healthcare practitioners to identify our own homes where we live as the key place for wellness management and preventive care. So not only do we have to worry about hospitals, but now there’s a larger ecosystem that includes things that happen in our home. And this includes the importance of eating healthy, wholesome food, improving nutritional programs, and if you will, for everyone’s sake, boosting our immune system.

Our view is that this elevated awareness surrounding wellness at the consumer level is going to fundamentally drive the agriculture and food business going forward, probably at a much larger scale. Here at Mitsui, we will double our efforts in structuring the businesses in the overall food supply chain to address this key trend. In a nutshell, there’s a large convergence taking place between the food, ag, and nutrition space, and the prevention and wellness space. This is a very logical convergence in the minds of the consumers, which includes the younger generation. I think there’s a big trend going on.

Q3).

[GM] That’s a remarkable slate of activities. And it’s quite rare actually to have that type of focus in agriculture, food, and wellness, as well as even on the healthcare side. That is quite special about Mitsui’s portfolio. So Ken, Mitsui has invested in assets and businesses that you’ve assembled over many decades. But at the same time, Mitsui also invests in alternatives and real assets funds. How did this kind of investing get started? And what is its purpose?

[KH] Thank you for the question. Mitsui does invest in alternative investment funds in certain situations — we do it selectively. For instance, we may establish a good trust with a PP company, who is a GP group, and become interested in the portfolio that this particular team might be seeking to put together. We are interested in access to deal flow. Obviously, we’re interested in co-investment opportunities with these general partners. In general, we are interested in having a mutual referral of new leads with these funds. That’s the primary reason why we invest into funds as well as our own direct investments. And some GP groups may have strong access in certain geographical areas where we may like to augment our own existing network through such an additional relationship with these funds. As you know, there are very good funds out there so when we have built trust and relationships, we like to work with them.

Q4).

[GM] There are clear reasons that are relatively straightforward in terms of M&A and investments into companies directly. What are some of the benefits that Mitsui expects through these fund investments that are maybe slightly different than through the direct investing channel?

[KH] It’s an interesting thing for us. Obviously we direct investments into businesses that we think would fit our portfolio, and this receives priority, because we’re right in there. As I said, we see a supplementary and meaningful purpose in fund investing, because in certain cases, we will serve a shared role as co-GP. This is also a good business model because in that case, we can assign even higher value to that program. The bottom line is that being flexible and having a larger menu of workable investment programs – whether it’s direct investment, or working with other groups that have mutual referral arrangements, we think all of that works. We’re a very flexible company, and we think having a large menu helps us sustain our portfolio and achieve our growth targets.

Q5).

[GM] I’m going to shift gears a little bit. During Global AgInvesting conversations today, between you and I, and throughout the rest of the day, and obviously, tomorrow, many, many investors will hear about ESG, sustainability themes, and even natural capital, which is something that’s relatively new. How important are these factors when Mitsui considers an investment, both directly as well as into funds?

[KH] I fully agree with you, Greg. That ESG and sustainability, and natural capital will drive many key aspects of our investment decisions in the food, ag, and nutrition space. There are many new technologies introduced in the way we, for instance, farm animals and fish, and breakthroughs in precision agriculture. Another example would be digital tools, and the biological products that are used for crop science applications. There are a lot of new programs — even in the finance sector, such as business risk insurance and micro financing for agricultural producers. I think this is something that’s growing. All of these examples have a common theme and they contribute to conserving our scarce resources and preserving the environment.

Another thing is traceability. Traceability in the supply chain becomes very important. Now, we’ve been doing this for many, many years, but that is now very important. And being on top of such a wide range of sustainability issues in the ag space, I think we’ll eventually match the needs and the awareness of the end consumers. I’m circling back to my some of the things that I talked about, but I think they’re really coming out from the same barrel, if you will. And we foresee a new generation of consumers who will place a premium on products and services that are in alignment with these very important vital solutions.

Q6).

[GM] About two months ago, there was a big announcement about Warren Buffett’s Berkshire Hathaway becoming an investor. I think he now owns 5 percent of each of the five largest sogo shosha, including Mitsui. What do you think actually attracted him as an investor to Mitsui?

[KH] We’re pleased to have such a distinguished shareholder. And as we do with many of our institutional investors and shareholders, we have started our engagement communication with Berkshire Hathaway. And just as Berkshire Hathaway manages their great global portfolio, we think Mitsui has a unique portfolio of its own, with assets covering various industrial areas. We understand Berkshire has a long timeframe on their investments and we would like to continue improving our portfolio returns and strengthening our business assets to meet the expectations of our great shareholders. Apart from this, hopefully our global growth activities will find mutually beneficial projects with Berkshire – that’s also a possibility. We’re very excited and hope we can meet their expectations.

Q7).

[GM] Congratulations on having that stamp of approval from Warren Buffett, because that clearly has always been a very sought after acclamation of a company’s success. Good luck with that. Moving on, Mitsui owns and operates many food and agricultural businesses and animal and plant proteins, fertilizers, vegetable oils, feed additives, etc. But you have also invested in leading-edge companies such as Beyond Meat, and Eat Just, Inc., which is formerly Hampton Creek. I think that this suggests an emphasis on innovation so I wanted to ask, for the audience, how important is innovation to Mitsui?

[KH] Yes, we’ve been very pleased to have the opportunity to work with those innovative companies, Beyond Meat, and Eat Just, Inc. Here I will circle back to the consumers, who are increasing preferences for healthy food and elevating awareness regarding personal wellness, which is a big thing. Both of those companies that you’ve referred to have brilliant technologies, and are very innovative. It takes tremendous effort and know-how to achieve the desired texture and taste starting from natural plant-based protein. That’s a lot of work. We respect the people that have put their efforts into this. We think Mitsui can contribute in many ways. One easy-to-understand example would be establishing a transparent global supply chain for the key ingredients for their products with a very reliable, traceable system. And this is what we’ve been doing for more than a century, and in many ways, contributing to the growth of innovative companies have been a key corporate goal for us over the years. We work with the innovative companies and try to be creative ourselves so that we can help these companies grow.

Q8).

[GM] That’s great. And then because of your quite large portfolio of companies, how are you actually encouraging this innovative culture to be accepted or embraced by the portfolio that you have?

[KH] Appreciate that question. It’s an important point for us. Our belief is that innovative thinking resides at a cross section between industries where you can’t do in silos, there are always intersections. I can give you some examples of where, such as in natural food ingredients and chemicals. There’s an interesting convergence between agtech and the financial sector. We encourage our portfolio companies to interact with one another so that they can see new things and innovative thinking through the art of combination. We encourage that with our portfolio companies. It seems to work. With people working on new assignments and the sharing of human talent, you can accomplish a lot of things.

Q9).

[GM] We’ve talked about the allocations into GP’s and as an LP investor, we’ve spoken about this large portfolio of operating companies and investments, but there’s another niche or another corner of Mitsui that I want to talk about with you. In addition to the overall agriculture and food investing is the role of a subsidiary company called Mitsui Alternative Investment, which I think is part of your portfolio. My understanding is that Mitsui AI acts as a gatekeeper or placement agent for foreign funds into the Japanese market. I’m curious about what led Mitsui to start this business, and how is Mitsui AI doing these days?

[KH] Mitsui Alternative Investments, let’s call them MAI, they started their operation in Japan by introducing investment opportunities to the Japanese investors, including institutional investors and wealthy individuals. I think we’re one of the pioneers to introduce that into Japan. And the timing was good. And since then, MAI has been cultivating new and innovative investment opportunities for its healthy expanding client base. From that standpoint, ag investment is also receiving a lot of attention in the market here. And we will fully support their activities. You have to take certain risks, and you have to do your research to get into these areas, but I think the people at MAI provide a variety of support activities to the investors. I hope my MAI people are listening in today.

[GM] It’s quite a unique aspect in terms of the various types of businesses you’re involved with, and then also, this alternative vehicle, which you operate in. I haven’t seen that in other companies of your stature before.

We’re certainly grateful for such a strong partnership with Mitsui over the years. And it’s been wonderful to hear you speak today about all of the different activities. Thank you for sharing your insights and your thoughts. And we look forward to seeing you at the next year.

[KH] Yes, and, again, thank you so much. I enjoyed our time together.

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To note, one can still register for Global AgInvesting Asia to gain access to the recorded sessions and delegate list, and engage in private messaging for up to one year. Learn more about the conference here, or join us virtually for Global AgInvesting Europe, 7-8 December.

~ Michelle Pelletier Marshall is managing editor for HighQuest Group’s Global AgInvesting’s GAI Gazette magazine and its WIA Today blog, as well as a contributor to GAI News and the Oilseed & Grain News. She can be reached at mmarshall@highquestgroup.com.