The Farmland Frontier

Farmland is increasingly gaining traction as an attractive long-term investment option for sophisticated and capital rich investors. Direct investments in farmland have historically provided a healthy and relatively stable level of current income, a compelling risk-adjusted rate of capital appreciation, an effective inflation hedge, and a material diversification benefit resulting from very low or negative correlations to traditional asset classes.

Many investors remain timid towards the asset class, however, due to historically high valuations and a lack of efficient vehicles to build farmland exposure into their long-term investment portfolios. Farmland remains unsecuritized and unavailable to the broad public through any liquid and/or easily accessible type of offering. In the last several years, active investment managers have “cropped up” in the space and may offer an access point into this illiquid, alternative real estate asset class. Investment vehicles are provided by means of pooled partnerships, limited liability companies, corporations and even real estate investment trusts.

To further explore the viability of an investment in farmland, it is important to review the following factors: (1) historical risk, return and correlation data, (2) farmland valuation drivers, (3) the risk profile of farmland investment, and (4) active farmland fund management.