An asset class name change signals a strategy shift
AIMCo clients may have noticed the portfolio name Renewable Resources being used in place of Timberland. Timberland investments haven’t disappeared, but since the portfolio also includes agriculture holdings, AIMCo wanted to more accurately reflect the investments they manage in the asset class.
Although agriculture was not officially added to the timberland mandate until 2016, the team has been active in researching and evaluating agriculture opportunities for several years. AIMCo’s approach to agriculture started by exploring land conversion opportunities within its largest timberland investment, The Forestry Investment Trust (“FIT”), in Australia. Since 2014, over 6,000 hectares of non-core forestry land has been converted to row crops in Western Australia. Agriculture has several characteristics that are similar to timberland, including low or negative correlation to traditional asset classes, a track record of strong returns (both income and land appreciation), a duration match for long-term clients and inflation protection.
AIMCo will continue to evaluate both timberland and agriculture opportunities, however, recently the focus has shifted slightly in favour of agriculture. Here are five reasons why:
The current portfolio is heavily weighted towards timberlands (given AIMCo’s 14-year presence in the asset class). AIMCo hopes to balance this out over time.
Timberland has matured as an institutional asset class, making it more challenging to find attractively priced deals that will provide superior risk-adjusted returns.
There are significant opportunities in agriculture. The investible universe for agriculture could be as much as three times larger than timber, with greater product diversity.
Agriculture is well-suited for institutional ownership. It’s still quite fragmented with a large amount of individual ownership. Many farmers are aging (some without succession plans), undercapitalized (land rich, cash poor) and are running sub-scale businesses.
Market fundamentals are strong. Growing global populations will require more food and the rising middle class in Asia will intensify this demand for higher quality agriculture products. There is relatively inelastic demand for base agricultural commodities.
There is significant optionality associated with having both agriculture and timberlands in the Renewable Resources portfolio, as it allows the flexibility to pursue the best use for each property.