Securing A$200 million ($134 million; €123 million) in commitments from two major LPs in different countries is no mean feat for a farmland asset manager in Australia. But to also sell a minority equity stake in your business to the LPs at the same time is especially unusual, reports affiliate title Agri Investor.

This is what Australian asset manager Gunn Agri Partners has done. Last week, it was announced that the firm had garnered A$150 million from the giant Canadian investor Caisse de dépôt et placement du Québec and a further A$50 million from Australia’s Clean Energy Finance Corporation to create Wilga Farming, a platform that will invest in agricultural land Down Under with an express mandate to help further the decarbonisation of the sector.

While the acquisition of an equity stake in a fund manager is novel for both parties when it comes to Australian agriculture, the commitment to Wilga Farming is the latest in a series of equity commitments made by CEFC to farmland funds in the country. The deal represents a first for CDPQ, as it enters Australian agriculture for the first time, building on a strategy launched overseas.

Origins of the deal

Discussions with potential partners Down Under were already underway in June 2021, when CDPQ managing director Nicolas Leyssieux included Australia among target markets for a group of as many as seven agriculture and timber platforms for its Sustainable Land Management unit planned as part of efforts to deploy C$2 billion ($1.52 billion; €1.39 billion) over five years.

Montréal-based Leyssieux tells Agri Investor Gunn Agri had always been among a very small group of managers pre-selected as potential partners for its entry into Australia’s pivotal ag market.

After connecting with existing Gunn Agri investor CEFC through conferences and CDPQ’s local office in Sydney, Leyssieux says, an alignment between its strategy in agriculture and the opportunities available in Australia emerged naturally.

“Two investors combining with a manager is quite unique in Australia,” says Leyssieux, who helped manage ag-related investments at Bamboo Capital Partners and a single family office before joining CDPQ in 2020, according to his LinkedIn profile.

“We could have done it on our own. We’ve done agri and could have put a $150 million or $200 million cheque on the table and have the same type of platform. We really see a value-add in being with CEFC because they know the local environment well and have alignment in terms of strategy and the need for investment in sustainable and regenerative ag. We like that very much and believe that one plus one plus one equals four, not three.”

For their part, CEFC says it was keen to take the stake in Gunn Agri to strategically align its purpose as a government-backed investor focused on decarbonisation with an asset manager that could help to achieve those aims directly.

Heechung Sung, head of natural capital at CEFC, tells Agri Investor in a separate conversation: “All our investments to date have been as a passive LP or as investors in funds or with a fund manager, to hopefully [help them] execute and drive the sustainable outcomes we’re seeking. In some ways, we’re bound by the fund manager’s mandate or strategy [in those investments].

“We thought by taking a minority stake in a growing asset manager, alongside an investor like CDPQ, it will help better align future strategies with a decarbonisation outcome that the manager can deploy, giving us a seat at the table when those discussions are taking place.”

Sung says it is also a statement of intent, showing that CEFC is “standing behind the sector”.

“By backing an agricultural investment manager with a minority position, what we are signaling to the market is that the investment strategy and the asset class itself is highly attractive. That will hopefully attract more institutional capital into the asset class – capital that it needs in order to decarbonise.”

As for how the partnership with CDPQ came about, Sung says it was a natural extension to its existing position as an investor with Gunn Agri, with CEFC’s purpose always centered around how it can help bring in further capital to accelerate the decarbonisation of Australia’s economy.

Wilga Farming

The first acquisition carried out by the new platform, Wilga Farming, was of a 1,200ha property devoted to arable crops, grazing and conservation. Plans call for Wilga to seek out farms suitable for cereals, oilseeds, pulses and dryland cotton, among other crops. Leyssieux says that Wilga’s focus will be on aggregating properties and seeking opportunities for transformation and decarbonisation of them through carbon credits and natural restoration.

In addition to vehicles devoted to farming and cattle, Gunn Agri operates a Transforming Farming Platform strategy to which CEFC has separately committed A$50 million. It focuses on applying strategies including carbon sequestration and biodiversity conservation to underperforming small-to-medium-sized farms. Leyssieux stressed that while Wilga is a distinct platform from the TFP, the platform will look to draw on similar capabilities.

“The fact that Gunn Agri has already put in motion another platform, like the TFP, was a good sign for us. It means they already have market knowledge, experience and a footprint in the row-cropping area of Australia,” he says.

Sung says Wilga Farming’s strategy is a “bit broader” than that used by the TFP, although it shares the same goals of transforming under-loved and under-utilised assets.

“It’s a platform because, once this is fully deployed, there is no reason why CDPQ wouldn’t continue to invest. It’s seeded with initial capital to see if we can look at assets through the lens of highest-and-best value land use, [giving capacity to make] operational changes that need to be made on traditional commodity production assets but also tapping into broader environmental markets as they evolve over time,” she says.

“We’re trying to set this strategy up for the long term with a broader sustainable landscape [focus]. That’s why it’s necessarily a bit broader [than TFP] – we can potentially acquire large-scale grazing assets that can be transformed.”

Leyssieux says it is too soon to know how the portfolio may grow beyond the initial five-year commitment period of an investment he highlighted is designed for a hold of up to 30 years or more.

“We need to learn to walk before running. For us, this is a first, important, and quite significant step, on Australian ground,” he says. “Let’s see how it goes, learn about Australia and see how things develop and then in one- or two-years’ time we can ask ourselves whether there is more appetite to deploy more capital.”

Looking ahead

Wilga is the third platform established by CDPQ’s Sustainable Land Management since 2020, when it established a $125 million collaboration with S2G Ventures focused on ag investment in support of broader carbon intensity goals. The pension then launched a collaboration with the Alabama-headquartered timberland manager The Westervelt Company in 2021, which is focused on US Southeast timberland.

In a separate move at the start of this year, CDPQ acquired a significant minority stake in Westervelt Ecological Services, which is devoted to mitigation banking.

Leyssieux said that as his unit continues developing other ag and timber related platforms in markets he declined to discuss in detail, it is prepared to act alone when justified, but remains open to partnership with peers, sustainability-focused institutions like CEFC or other capital providers.

“It’s always something we are open to if there is good reason to do something together,” he says. “We find value in having an aligned investor with us, but not always.”

As well as its investments with Gunn Agri Partners, CEFC has made equity commitments of A$100 million to the fund behind Macquarie Asset Management’s Viridis Ag cropping platform, a further A$75 million to MAM’s open-end Macquarie Pastoral Fund (the vehicle which owns the assets managed by Paraway Pastoral Company) and A$30 million to the Wyuna Regenerative Agriculture Investment Fund. It is also an active agtech investor, committing A$8 million to the first fund raised by Australian agtech-focused venture capital firm Tenacious Ventures, among other investments.

For the CEFC, Sung did not rule out the possibility of investing directly into equity positions in other fund managers in future, should the right opportunity arise.

“It’s not a strategy that we’ve applied [before] – and we will look at the best way to assert our influence. It’s not like we’re saying: ‘Okay, now we have a strategy of buying lots of investment managers.’ That’s not how we operate.

“We operate on the basis of achieving the greatest outcome for the sector in terms of driving the sustainability and decarbonisation outcomes. And in this case, it just so happened that we could also do that by acquiring a small stake in the manager.”

Both investors are clearly excited by the opportunity available to them in Australian agriculture, for different reasons: for CDPQ, it is about adding Australian farmland to a portfolio of investments in natural resources, that will both generate a positive return and contribute to its sustainability goals; while the CEFC sees agriculture as a vital place for it to deploy capital to achieve its decarbonisation mandate as set by the Australian government.

“It’s a pretty exciting transaction, to bring a new capital partner into the Australian market. And I think CDPQ is very excited about it, too,” Sung says.

“This is a positive signal around this asset class being inherently investable for institutions.”