Australian Farmlands Fund

  • Overview
  • Investment Strategy
  • Assets
  • Information Memoranda
  • Financial outcomes

The Fund is an investment in natural capital through the purchase and regeneration of Australian farmland and water.  It invests in southern Murray-Darling Basin farmland, water & ecosystem assets to provide investors uncorrelated, risk-adjusted returns on capital, through value-add transformation of farmland for sustainable food production balanced with scaled reforestation (up to 30%) to protect biodiversity and deliver a climate change mitigation service.  The Fund was established to offer wholesale investors access to the knowledge and experience gained by Kilter Rural over the previous 15 years delivering a $200M institutional farmland and water impact investment.

As at July 2021 the Fund moves from 150ha of cropping area, to more than 1000ha of redeveloped cropping country and from 9% to 21% of the farms reforested for nature protection and carbon sequestration services.

By 2050 the world will have:

Asset 692

A population of around

9 billion people

Asset 522

Which will require a

75% increase in food calories

The challenge is to:

Asset 672

Produce more food while
avoiding further

Environmental Loss

Asset 662

And reduce the impacts of

Climate Change

through improved practices

Overview of the Australian Farmlands Funds

The Funds comprise two Australian unregistered, unlisted unit trusts – the Australian Farmlands Fund and the Australian Farmlands Operating Fund that are ‘stapled’ in a legal relationship.

The Funds represent an opportunity through which sophisticated and wholesale investors can access an agribusiness portfolio of irrigated farmland, water and environmental assets in the southern Murray-Darling Basin (sMDB).

Financial returns are delivered through the regeneration of underutilised irrigation farming operations to deliver high-value organic and conventional crops, sustained by ecosystem protection to deliver long-term returns to investors. Investors will gain the benefit of Kilter Rural’s extensive experience delivering impact through farmland, water and ecosystem regeneration.

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For 15 years Kilter Rural has deployed and refined its investment strategy via a $400 million mandate for a $25 billion institutional investor. The strategy has outperformed in delivering financial returns with significant and measurable environmental and social benefits.

A key feature of any Kilter Rural-managed landscape is planning for and mitigating climate risk with farmland providing a net carbon sink, which involves sequestering more carbon than operations emit.

Asset 402

In 2019, Kilter Rural was awarded Impact Asset Manager of the Year at the Asia Pacific Impact Investment Summit.

Investment strategy features:

  • Target underutilised farmland: Land use transition presents opportunity for attractive entry value and the ability to aggregate scaled areas of high-quality soils.
  • Water security: Ownership of a portfolio of high security Water Entitlements that operate only in regions with secure water delivery.
  • Regenerate and value add: Aggregate properties, regenerate soils, import irrigation technology and repurpose to a high-value cropping program buffered by scaled ecosystem protection.
  • Mitigate price risks: Remove exposure to commodity price fluctuation by working through established offtake agreements to service unmet demand for high value conventional and organic produce.
  • Mitigate industry and climatic risks: A geographic and industry spread within the sMDB mitigates industry and climatic risk.
  • Monitor and report impact: Utilise the Accounting for Nature framework to monitor, measure and report annually on the trend in environmental condition of natural capital (soil, vegetation, water, fauna) and progress towards defined targets. Learn more about the Kilter involvement with Accounting for Nature.

Exit options: The Funds’ aggregation approach makes for an attractive investment option to corporate and institutional-grade investors and provides a variety of exit strategies.

The Kilter Rural strategy for farmland regeneration has proven across 15 years to moderate risks associated with climate change and weather events. It produces high-value agricultural commodities balanced by advances in soil and ecosystem condition to deliver sustained yield increases and improved long-term asset value.

“In a Kilter Rural managed landscape, agricultural production and ecosystem protection are inter-dependent partners in delivering increased yields and long-term investor value.”

Why Invest in these assets?

Australian Farmland:

  • Strong Historical Value Trends: the 20-year CAGR for farmland is 7.6% (as at 2020)
  • Diversification: Portfolio exposure to an asset class with low historical volatility and low correlation with traditional asset classes
  • Increasing scarcity: Arable land per person declined by 52 percent, from 1961 to 2015
  • Increasing demand: The UN’s estimates that there will be an extra two billion people on earth by 2050. Globally, the fundamental agricultural resources required for food and fibre production face ever- increasing pressures and increased exposure to  climate change
  • Regulatory stability and Low Sovereign Risk: Australia’s government is stable and regulated. Australian agriculture is globally recognized for its high food safety standards, strict bio-security regulation and proactive environmental regulation protecting soil, biodiversity and water assets

Australian Water:

  • The most sophisticated investable water market globally
  • Uncorrelated with traditional asset classes (-0.05)
  • Water Entitlements are underpinned by strong property rights – perpetual, transferable, mortgageable and can be divided  and amalgamated
  • Investment diversification and risk mitigation
  • Underpins agricultural production by mitigating climatic exposure
  • Strong & rising demand amid increasing population and high-value food and fibre production
  • Capped & falling supply due to the Murray-Darling Basin Plan and climate change
  • No substitute as the world’s most fundamental commodity

Carbon and Biodiversity:

  • Climate Change Mitigation: Through facilitating carbon sequestration and biodiversity protection, Kilter Rural delivers a landscape contributing to the solution and showcases an exemplar format of agricultural investment
  • Access to New Markets: As the world seeks to decarbonise, global demand for carbon credits and biodiversity outcomes accelerates, through registered carbon sequestration projects, Kilter Rural can access new revenue streams for the Funds
  • Long Term Sustainability: To create an economically, socially and environmentally sustainable business – one that produces profits and jobs while improving the environment from which these outcomes are derived

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With more than $500 million in assets under management, investors can access a proven value-add investment strategy addressing climate-change risk and holds a track record of delivering 9% to 17% p.a. returns*.

*Past performance is not an indicator of future performance

Financial Outcomes:

Projected investor IRR and elasticity when key variables are applied

SCENARIO LOW CASE BASE CASE HIGH CASE
INVESTOR IRR 7-10% 10-12% 13-15%
Key Variables
Land Capital Growth 4.0% 6.5% 8.0%
Water Capital Growth 4.0% 6.5% 8.0%
Crop Prices Received (% deviation from ten year average) -12% 100% +12%
Crop Yields (% deviation from ten year average) -5% 100% +5%

Notes to key variables

  • The 20-year average annual land value growth across all Australian farmland transactions is 6.6%
  • The 20-year average annual land value growth across all Victorian and NSW farmland transactions is 6.5% and 6.9% respectively.
  • High Reliability Water Entitlement (Goulburn) annual capital growth averaging 11.3% per annum from July 1994 to Dec 2019.
  • Low and high case price and yield variables are expressed as a percentage of the ten-year average modelled over the duration of the Funds’ term.

Disclaimer: The fund returns are projected only and based on assumptions and forecasts that are accurate as at 30 June 2020 as outlined in the Information Memorandum for the KAFF. The figures are projections only and are not an indication of performance.