David Sackett

One of Australia’s leading financial planning firms, Providence Wealth, has made a substantial investment in Growth Farms Australia’s new farm leasing fund, the Australian Agricultural Lease Fund, acting as a cornerstone investor for the innovative scheme.

Providence Wealth’s managing director Grant Patterson says the firm was looking for investments in the agricultural sector to give its clients greater diversification but could not find what it was looking for.

“None of the corporate vehicles or products offered by investment banks were appropriate. I did not think the people running them had sufficient expertise,” Patterson says.

He was introduced to Growth Farms’ managing director David Sackett several years ago and they started talking about a product that would work for Patterson’s clients.

Providence Wealth is an independent financial planning firm catering to high net worth individuals, wealthy families and not-for profit organisations, with around $1 billion of funds under care.

Patterson says: “Our clients are long-term investors with patient capital. So, they are not put off by the prospect of an illiquid asset with a 10-year life.

“We are attracted to agriculture because it has low correlation to other assets and it has a number of economic tailwinds behind it. Australian primary producers are catering to growing demand from Asia and they are making strong productivity gains through the use of technology.”

The Australian Agricultural Lease Fund will buy agricultural land, typically with a value under $10 million, and lease it to primary producers. Farm leasing is a well-established model in the US and other markets, and Growth Farms believes it has strong potential in the local agricultural sector.

Growth Farms’ managing director, David Sackett, says the advantage of the leasing model is that it gives farmers an opportunity to expand their businesses without having to find the capital to buy more land.

A farm leasing fund is similar to a commercial property fund, where investors receive an income based on the rental yield and are exposed to the change in the capital value of the property, not the value of the business using the property.

Growth Farms has forecast that the Australian Agricultural Lease Fund will produce an annual gross yield of 4.5 per cent. Lease terms will be struck on a three-year term initially, with extensions of three and four years. They will be indexed to CPI and adjusted to land valuations at rollover.

Sackett notes “Historically land has increased in value at around 6% per year and this increase in value, which is an important part of Fund returns, and will be returned to investors at the close of the Fund”.

Patterson says: “This suited us because we did not want exposure to the underlying production risk. We like having exposure to the growth in the value of the land as it improves.”

Patterson says he also likes the fund’s strategy of acquiring fairly small parcels of land, allowing local farmers to expand their operations, rather than taking the risk on leasing large holdings.

The Australian Agricultural Lease Fund is open to wholesale investors, with a minimum investment of $100,000. It is a closed-end unit trust with a term of 10 years, although unitholders will have an opportunity to vote on continuing the fund or winding it up after five years.

The fund will acquire farmland and water rights in higher rainfall regions, including North Queensland, Northern New South Wales, the Southern Murray Darling Basin, Victoria and Tasmania and South Australia.

Growth Farms was established in 1999 and currently invests in Australian agriculture on behalf of institutions, family offices and high net worth individuals. It has more than $440 million of funds under management.

Since 2008 it has produced a pre-tax internal rate of return of 10.4 per cent a year.

Growth Farms portfolio managers currently operate in a number of regions and have experience in acquiring and leasing properties in the target areas.

Patterson says: “One of the things we like about Growth Farms is that it has people on the ground working with farmers in their communities. It is not a bunch of people in suits.”

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