Is now the time to invest in Africa?

Africa seems to be the new darling of the emerging market managers who are looking for higher returns for their investment portfolio.

The demographics sound impressive:

• Africa's population has rapidly increased over the last 40 years, and consequently, it is relatively young. In some African states, half or more of the population is under 25 years of age.
• According to McKinsey & Associates, household consumption in Africa is now higher than India or Russia and is expected to continue to grow.
• Africa is vast- 54 countries and 29 stock exchanges and different regions present different opportunities.

Original Photo: www.freeworldmaps.net

 European investors have been investing in Africa with much success over the last decade and now it seems that US pensions, endowments and foundations are starting to pay attention as well. There are many ways to access this market including private equity, publicly traded stocks, as well as direct plays in natural resources and infrastructure. However, investing in Africa is not for the faint of heart. The news headlines are filled with negative stories about violence and political instability. Here are some recent articles about this opportunity:

Africa: the final investment frontier? March 4, 2013
http://www.fundweb.co.uk/fund-strategy/issues/4th-march-2013/africa-the-final-investment-frontier/1066776.article

Is Investing in Africa a good bet? January 24, 2013
http://www.voanews.com/content/world-econd-forum-africa-24jan13/1590036.html

Follow the Fixer February 22, 2013
http://www.economist.com/blogs/schumpeter/2013/02/investing-africa

Africa Ripe for Investment December 5, 2012
http://money.cnn.com/2012/12/05/investing/africa-funds-stocks-bonds/index.html



We are currently researching the African market. Please let us know your thoughts by emailing us at
inalternatives@iirusa.com

-The IIR Alternatives Team

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What Will Distinguish Top Asset Managers in 2013? Innovation, Researchers Say

As defined contribution plans continue “the quest for new innovative products” in the alternatives space, money managers are going to have to notch up their product creativity.  Pension plan managers are looking for managers with unbundled fund options and customized target-date funds that offer multiple manager inputs. This search trend has created some challenges for large money managers as their smaller competitors have been able to adapt quickly to the needs of the DC plan market.

Pension Plans are also seeking more options in real assets, real estate, and private equity, and customized target-date funds provided by nimble small managers are allowing plans the flexibility they need for these allocations. This is good news for smaller managers, as asset owners are “basically asking for investment strategies traditionally managed by smaller managers,” said Ben Olmstead of eVestment LLC.

So what; is a large asset manager to do? According to research from Casey, Quirk & Associates and Cogent Research LLC, large managers could create replication strategies, refocus on product development and differentiation, and “recognize the shift” away from traditional equity and fixed income. While the largest managers are still growing assets, the managers that find a way to focus on asset classes and build expertise or differentiation have a chance to stay in the game, said Gary Shub of Boston Consulting Group.

Another arena larger managers are competing with their smaller peers is in emerging markets, where equity and debt saw more than $50 billion in inflows last year. However, while “it’s not too late to get in (to emerging markets),” Benjamin Phillips of Casey, Quirk & Associates said, managers will “need a highly differentiated product” to find any opportunity.

The Road Less Traveled

Here are some recent articles from Pension and Investments we found that illustrate plan sponsors’ search for innovation:

Demand for innovation threatens biggest firm
(Pensions & Investments, Kevin Olsen, February 18th , 2013)

Pension funds are unlikely to be part of any big equity push
(Pensions & Investments, Thao Hua, February 4th, 2013)

To share your thoughts about what you are seeing in the pension industry please get in touch with Francoise Van Keuren via email: fvankeuren@iirusa.com. 


-The IIR Alternatives Team

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Which Crop is the Next to Pop?

Agriculture can be contradictory asset class, with investors often viewing the opportunities as both over-heated and under-invested. But throughout our research with investors and managers alike, all signs points to permanent crops as the next segment to pop. 

Many investors lump long-time favorite timber into the permanent crop category – and there are some relative newcomers like palm oil and perennial energy crops that are also getting attention. But more frequently, we’re hearing that the more niche permanent crops are the ones to watch. Investors love these “boutique” items, such as avocados, almonds and pistachios because they, often command higher prices resulting in higher margins. There’s even a shift within individual commodities – with the more profitable and easy-to-peel Clementine orange gaining traction over the more cumbersome Valencia version. And with last summer’s drought still fresh on the mind of many investors, permanent crops are often viewed as a more palatable investment amid environmental instability. 

Of course, there are risks. While permanent crops may be a better buy amid weather volatility, they are subject to market volatility and the whims of consumer demand. And while Asian countries are among the biggest purchasers of U.S. permanent crops, there’s some anxiety that China will become a hefty competitor in some categories in the not so distance future.

Currently row crops still dominate, accounting for roughly 70% of most Ag Investors portfolios but with permanent crops showing so much promise we expect allocations to increase.

How do permanent crops factor into your agriculture investment strategy? Tell us and get involved with the AgReturn conference series. Contact Conference Producer Diana Middleton, dmiddleton@iirusa.com, for more details.

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Forget About the Heartland – Agriculture Investing Is Hot in Asia

Thanks to historically high barriers of entry, such as low liquidity, institutional investors only own roughly 3% of the agricultural farmland market, according to Bloomberg estimates. And as U.S. investments, such as farmland, fetch ever-escalating prices, investors are looking toward other markets to put their money to work.

 (Photo: PlanetObserver)

Many are eyeing Asia, a continent with rapidly changing consumer tastes, nutritional cognizance and discretionary spending as the place to be. Asia’s been touted not only for its non-traditional ag investment opportunities – but the region’s huge number of consumers impacts many non-Asian ag investments.

Take, for example, Deutsche Bank’s pitch to investors for Fonterra Cooperative, a New Zealand dairy. Investment analysts say Asia’s growing taste for dairy could provide an upside for investors. The demand also creates an optimal M&A climate, according to this WSJ story.

Last month, Victor Lean, managing partner of Singapore-based Caudex Asia shared his thoughts on Asia-focused private equity opportunities at AgReturn Global Investments, an investing conference in Chicago.

While investments in other emerging markets, such as Latin America, tend to focus on the perennial favorite – farmland – he focused on opportunities in extricating value in other links of the Asia supply chain, including fertilizer, post-harvest technology and processing. Whether it is dairy or farmland, Ag is clearly a place to extract profits in the near and long term.  Our next Ag Return event will be in June of 2013 stay tuned for updates and information on this sector of the market.

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Fifty Shades of Ag Investing

Agriculture as an asset class has gained major traction with investors of shapes and sizes in the last few years. Institutional investors’ allocations to agriculture are expected to grow from 1% of portfolios to 5% in the next five years according to industry estimates. That increase in investment is sorely needed. According to UN estimates, by 2030, the world will need at least 50% more food, 45% more energy and 30% more water. In short, the population of the planet is growing faster than its food and water supply. To learn more about the coming shortage click here.

(Photo: thegreenpages)

The metrics alone are cause for urgency, and our research shows that investors are paying attention. But with so many entry points into agriculture investing, investors are still forming their strategies.

Many institutional investor players have entered the game with farmland investments, although some are turned off by lofty valuations in the U.S. or lagging yields abroad. Others are pondering agribusiness private equity plays, both domestic and in emerging markets poised for growth.

The research is clear – there is an abundance of investment opportunities in ag across the food chain, from inputs to row crops; farms or packaged goods; grain elevators or disruptive technologies. In a relatively untested industry, investors are hungry for tried-and-true agriculture investing strategies.

Our AgReturn series, which released its agenda this week, gives investors the inside scoop on the myriad opportunities in agriculture, including commodities, farmland, biotech, crop protection and many others. This is a comprehensive view of an overwhelming space that highlights true success stories in an industry some have worried is the new cleantech.

This year’s AgReturn speakers have accomplished a lot in ag recently. They’ve debuted the hottest non-Facebook IPO of the year; sold portfolio companies to major corporate agribusinesses; or set the stage for governmental agriculture policy.

It’s a feast for investors who are hungry for opportunity. Click here to see a bit more about the November program.

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