How FarmTogether Can Help You Add Alternatives to Your Clients’ Portfolios
Alternative investments have long been a key component of institutional investors’ and ultra-high net work individuals’ portfolios. Now, a wide range of retail investors are clamoring for access to venture capital, private equity, farmland and collectibles, among other asset classes. The challenge for RIAs is how to sort through the wide range of available alternative investments to determine which are high-quality and most suitable to their clients’ needs. Read on to find out how FarmTogether is enabling RIAs to easily access high-quality farmland investments for their clients.
Farmland is a little-understood asset class with many benefits for investors
It is widely accepted that alternative investments provide an important complement to an investor’s portfolio, helping decrease portfolio volatility and achieve above-market returns. Many RIAs and investors are familiar with the benefits of some more mainstream alternatives investments, such as mutual funds, ETFs, gold or real estate. However, one under-appreciated asset class with many benefits for investors is farmland.
It is only in recent decades that interest in farmland has become widespread among institutional investors. In 2005 there were only 19 investment funds globally focused specifically on farmland; this number had increased to 166 by 2020. This trend is illustrated by the news in early 2021 that the single largest owners of farmland in the United States are now none other than Bill and Melinda Gates.
Farmland has several characteristics that make it worth recommending to investors. First, farmland offers superior real and risk-weighted returns. Over the past thirty years, farmland has offered total returns of 10.9%, compared to stocks, which returned only 7.9% over the same time frame. Farmland looks even more attractive when one takes volatility into account. The NCREIF Farmland index has a Sharpe ratio of 1.2, compared to a Sharpe ratio of 0.3 for the S&P 500. This means that farmland delivers above-market returns with significantly less risk.
Farmland also acts as an effective hedge against inflation. Farmland investments offer two sources of returns to investors: price appreciation when the underlying asset is sold and periodic rental and crop payments. Historically, farmland returns have been closely linked to CPI. As CPI increases, so too do periodic cash payments.
A third reason to consider recommending an allocation to farmland is that it performs well during economic downturns. Farmland is uncorrelated with major asset classes including stocks and bonds. The NCREIF farmland index has only had two quarters of negative returns since 1992, in sharp contrast with the stock market. During the Great Financial Crisis, the NCREIF was up 17% between Q4 2007 and Q1 2009, and in contrast to the stock market volatility brought on by the COVIDf-19 pandemic, farmland returns compressed only slightly.
For all these reasons, an investment in farmland is worth considering as a hedge against future economic uncertainty.
RIAs can help clients select the right farmland investment
However, making the right investment in farmland requires a sophisticated understanding of the nuances of farmland investing. For example, permanent crops and row crops have vastly different risk and return profiles. For this reason, it is important that you familiarize yourself with farmland as an asset class in order to guide your clients towards the right farmland investments for their portfolio. Opportunities are not one size fits all, and choosing the right investment requires a thorough understanding of your client’s risk tolerance, investment horizon and overall investment goals. Many investors are unfamiliar with the nuances of various alternative solutions and require the guidance of an experienced RIA.
FarmTogether can help you become knowledgeable about farmland investing
FarmTogether’s platform can provide you with the resources you need in order to best advise your clients. Despite the many benefits of investing in alternatives generally and farmland in particular, many RIAs remain hesitant to recommend alternatives to their clients. According to a report by PFI Advisors, independent advisors cite several challenges, all of which can be solved with FarmTogether’s platform
Low Investment Minimums.
Historically, many alternative investment managers have required minimum investments of $10 million or more, which can be out of reach for many RIAs. In addition, many RIAs believe that a minimum of $25 million or more in investable assets is required in order to create the scale to make alternative investment strategies cost effective. FarmTogether changes that. The platform offers a wide range of high-quality farmland investment opportunities for as little as $15,000 or as much as several million through their bespoke channel.
Easier Due Diligence and Compliance.
It can be challenging for RIAs to appropriately diligence alternative investments and complete the appropriate compliance reporting. FarmTogether takes this burden away from RIAs. FarmTogether’s seasoned investment professionals carefully vet each investment opportunity on the platform, providing only the highest quality targets to investors. FarmTogether also provides investors and advisors with a full suite of diligence materials at their fingertips, making research and reporting easier than ever.
Full transparency around performance.
Unlike public assets, which have updated performance data daily, understanding the performance of private illiquid alternative investments can feel daunting. FarmTogether’s platform seeks to provide maximum transparency. With its clear reporting and user-friendly interface, the platform makes farmland investing as clear as possible.
100 Years of Management Experience. Because of the magnitude of the universe of alternative investments, it can seem difficult or impossible for RIAs to attract high-quality investment managers and select the best alternative investments. Thanks to FarmTogether, they don’t have to. FarmTogether’s team has more than 100 years of experience in farmland, agriculture and real estate. FarmTogether originates high-quality deals and provides you with the materials you need to understand them.
All-In-One Tech Platform.
The legal and accounting aspects of managing alternative investments, including creating limited partnerships, managing capital calls and fund distributions, structuring funds for tax optimization and managing fund accounting, can be prohibitively expensive and/or complex for many RIAs. Fortunately, technology makes these processes cheaper and more streamlined. FarmTogether takes the burden off you by providing hassle-free investment services, including portfolio performance monitoring, accounting, and tax reporting. The platform is able to support investments made by individual entities, self-directed IRAs, corporations, LLCs and other investment vehicles. FarmTogether also provides investors secure access to documents and investment performance, including projected and actual payout comparisons, historical distributions and K-1 tax forms.
FarmTogether takes the pain out of offering farmland investments to clients
Despite the benefits of adding alternative investments to a portfolio, many RIAs are hesitant to recommend them to clients. This is not because of any excessive risk around alternatives but rather due to a lack of knowledge, perceived complexity or prohibitive costs. Thanks to FarmTogether’s technology-enabled investment platform, RIAs no longer bear the burden associated with providing their clients high-quality farmland investments. Instead, they can focus on researching top-quality investments.
Contact the FarmTogether team to learn more about adding farmland to your clients portfolios, as well as how FarmTogether can help you better serve your clients.
Disclaimer: FarmTogether is not a registered broker-dealer, investment adviser or investment manager. FarmTogether does not provide tax, legal or investment advice. This material has been prepared for informational and educational purposes only. You should consult your own tax, legal and investment advisors before engaging in any transaction.