Those happy with the steady returns generated by UBS Global Asset Management US Farmland will be interested to learn that the bank's global real estate business is at it again, in two new geographies.
It is expected that UBS will launch a fund aimed at investing in farmland in South America. The fund entered the approval process with the upper echelons of UBS in December last year. The equity target for the fund is expected to be about $500 million.
It is believed a second fund will also enter the approval process next month. The same powers that be are expected to give the green light to a Central and Eastern Europe vehicle, which will target a similar figure to that of the South America fund
Both funds are planned to hit the fundraising trail during 2009 and could span approximately seven years.
Investment is anticipated to come from an array of global pension and sovereign wealth funds, with projected returns in excess of 12 percent.
Sources close to the matter said the sector is a good bet for those looking for stable income and diversification from traditional stock, bonds or real estate portfolios. And as some consumables fall in value, the same distress that is being seen across mainstream real estate markets will be seen in the agricultural sector – opening the door to more attractive opportunities.
According to Bloomberg, world stockpiles of wheat, corn and soybeans have fallen considerably from their record levels of last summer, with wheat futures down 58 percent since February 2007, corn futures down 52 percent since June 2007 and soybean futures down 41 percent since last July.
While the agriculture sector is widely regarded as a safe play within a mixed portfolio, the anticipated return of the two new funds reflects the increased risk of investing in emerging economies, such as Brazil for the South American fund and Hungary, Romania and Poland for the European vehicle.
These returns would be an increase on those managed by UBS' US agriculture business which, since its inception in 1991, returned 11.18 percent. The slightly more sober US return still outperformed the country's benchmark Core Farmland Index, which returned 10.92 percent over the same period.
In the US, UBS has grown its agricultural portfolio to 91 assets, with a gross value of $429.3 million, on behalf of 17 investors. The portfolio is managed by a UBS Global Asset Management entity called UBS AgriVest, which would be tapped for the management of the South American and European vehicles.
UBS is expected to strike a cautious “multi-strategy” approach by investing in joint ventures and through structures such as sale and leasebacks to ensure existing local knowledge plays a key role. Although UBS would not be operationally on the ground, its partners and tenants would be.