Finding Value in Sustainable Agriculture

Equilibrium Capital has found its niche investing in sustainability driven real assets. A principal in its sustainable ag program discusses investing in responsible food production.

There are plenty of private equity firms that invest in renewable energy or have ESG programs. But investing in sustainable agriculture? Not so much.

Equilibrium Capital is focused on the long-term management of natural resources, mostly in the form of land stewardship, green real estate, water management, renewable energy, and looking at how to make agriculture more sustainable.

Rob Hurlbut, a principal in the firm’s sustainable agriculture program, came to Equilibrium after spending “the better part of 30 years” in the food industry. He started out as a commodities trader in coffee futures, then worked in risk management as well as consumers and branding at Nestle, became CEO of boutique meat producer Niman Ranch, and finally started natural organic cereal company Attune Foods.

He joined Equilibrium to help “convert a sustainable approach to food to an alpha opportunity.”

“I realized there were opportunities to take best practices in sustainable and organic [agriculture] to address opportunities in the food supply to deliver healthy and nutritious sustainably produced foods at a value that a greater number of consumers could afford,” Hurlbut says.

In the last five years, there has been a significant growth in private capital agriculture funds. He says that due to the significant transition of farm ownership as farmers age, “we thought it made sense to look at it from a different angle—as an owner-operator.”

Equilibrium recently did a final close on its first ACM Permanent Crop Fund in December. It was oversubscribed, hitting the $250M hard cap, with investors including pension funds, endowments, and a couple of family offices. The capital will be invested in permanent cropland and related midstream assets to create a vertical, sustainable farming enterprise that encompasses growing, packing, and marketing produce.

The portfolio includes farmland in California, Oregon, and Washington—areas that were chosen to mitigate weather risk—with four types of crops being grown. Hurlbut says they’re currently focused on getting a successful strategy going, but that farmland in the U.S. is a $1T asset class with plenty of room for innovation and investment.

“There’s a way to do it to ensure really successful long-term outcomes,” he says. “Things like growing topsoil depth and biodiversity.”

Another boost to the firm’s first fundraise targeting sustainable agriculture—and a boost to continued investor interest—is that consumers are increasingly thirsty for knowledge about where their food comes from and whether it was produced in a sustainable manner.

Equilibrium decided to look at where the immediate market opportunities were to leverage best practices and organic farming. “We looked at the permanent crop space in general and had a real opportunity to get those skills to deploy effectively across a diversified portfolio,” Hurlbut says, adding that they handle the processing as well as the growing. And so far, he says, they’ve become “real leaders” in the farming of blueberries, citrus fruits, table grapes, and tree nuts.

Private capital investments in agriculture have become more popular in the past five years, but Hurlbut says he has spent a fair amount of time helping people understand how the asset class functions. When people are looking at their real asset portfolios, their first thought is often minerals, mining, oil and gas, timber, or real estate. Food and agriculture is a new area.

“We’re happy to help people get comfortable with the space,” he says. “There are any number of strategies to play in food and agriculture. It’s a huge category, but there hasn’t been much institutional investment in it thus far.”