Non-bank fund aims for rich agriculture harvest

Non-bank lender Merricks Capital has set its sights on creating a multibilliondollar agricultural lending platform to provide capital for farm acquisitions as it looks to generate double-digit returns for its wealthy investor base from the booming farming sector.

The Liberman family-backed fund manager expects to raise $500 million within 12 months for its Agriculture Credit Fund, which launches today, and to increase that through wealth platforms and high-net-worth clients.

The fund will provide loans of between $10 million and $150 million to farmers for real estate acquisitions and related investments in infrastructure and supply chains.

Interest rates will range from 6 per cent to 12 per cent for first mortgage finance secured against hard assets.

Merricks will look to take advantage of what it says is a need for private debt funding in agriculture amid a pullback from the banks and a lack of appetite from non-banks to lend in the space.

‘‘ There are over 50 equity funds [invested in agricultural real estate] in Australia. But on the debt side, we can’t identify any major competitors,’’ Merricks CEO Adrian Redlich told The Australian Financial Review.

‘‘ No matter how much we raise, it won’t be enough to meet demand.’’

Merricks will draw on its long association with the agricultural sector as a commodities trader, former farm owner, farmer manager and lender. The fund manager has $800 million committed to the sector, including funding ProviCo’s acquisition of the Dennington dairy plant in western Victoria from Fonterra last year.

‘‘ We currently have $288 million of [farming] loans in due diligence to close by June 30. We anticipate high single-digit returns,’’ Mr Redlich said. ‘‘ Returns could be in the double digits.’’

Merricks’ decision to launch a dedicated agricultural fund comes amid some of the best conditions in decades.

Driven by growing demand for Australian commodities such as beef, wheat, lamb, wool, citrus and nuts, record prices and a bumper harvest, farm production is expected to hit a record $66 billion this financial year.

As a result, cashed-up farmers have been expanding their portfolios alongside corporate activity: fund managers are channelling private equity and institutional capital into agricultural real estate, either as quasi-operators or investors. Competition for assets has pushed property values to new highs.

‘‘ We like having the agricultural exposure in our portfolio,’’ Mr Redlich said. ‘‘ If inflation surges, it’s one sector of the real estate market where revenue will rise faster than inflation . Food prices will go up faster [than inflation ], giving borrowers the ability to service debt.’’

With less competition in the space, the risk-adjusted returns in agriculture were better than in the apartment market , where demand for debt was slowing , he said.

Mr Redlich said: ‘‘ We are bullish about the medium- and long-term growth prospects of agriculture, which we believe is poised to reap the benefits of a positive seasonal outlook, favourable market conditions and commodity prices, growth in land value and productivity improvements.’’

Copyright © 2021 The Australian Financial Review

AFR – Wednesday, 5 May 2021 – Page 29