Recently it hit the news that Bill and Melinda Gates are now the single largest owners of farmland in the United States. It may seem surprising, but institutional investors have known for years about the attraction of farmland as an asset class. Read on to find out why Bill Gates is buying farmland and how farmland investing isn’t just for billionaires.
According to The Land Report, the single largest owner of U.S. farmland is none other than Bill Gates.
On January 11, 2021, The Land Report revealed that Bill and Melinda Gates now own over 260,000 acres of land in the United States, including 242,000 acres of farmland, in 19 states. The next largest farmland owner, the Offut family, comes in a distant second with 190,000 acres.
Gates’ investment manager, Michael Larson, has been quietly buying farmland for years through Cascade Investment LLC. Their single largest acquisition took place in 2017, when Cascade acquired the Agricultural Company of America (“AgCoA”), a private U.S. farmland REIT, from the Canadian Pension Plan Investment Board (“CPPIB”). AgCoA was launched in 2007 as a joint venture between Goldman Sachs and Duquesne Capital Management. In 2013, when it was acquired by CPPIB, it ranked among the largest institutional investors of row crop farmland in the U.S., with over 100,000 acres of land.
Gates reportedly purchased AgCoA for around $520 million. A year later, he followed this purchase with the acquisition of 100 Circles, 14,500 acres of prime farmland in Washington State. He acquired this parcel for a purchase price of nearly $171 million from John Hancock Life Insurance, another institutional investor.
Source: The Land Report
It’s not clear whether Bill and Melinda Gates are working to align their U.S. farmland holdings with the Gates Foundation’s wider goal of increasing sustainable agriculture globally. However, there is some indication that they are leaning in that direction. Cottonwood Ag Management, a subsidiary of Cascade Investment, is a member of Leading Harvest, a nonprofit organization focused on creating sustainable farming standards.
While it may seem counterintuitive for a tech billionaire to be buying up something as low-tech as U.S. farmland, farmland investing has many benefits, and the Gates’ investment in farmland is part of a wider trend of institutional investment in U.S. farmland. According to Valoral Advisors, the number of funds focused specifically on farmland has exploded from 19 in 2005 to 166 in 2020.
Why all the interest in farmland? First and foremost, farmland is underpinned by attractive fundamentals: the global population continues to grow and people need to eat. On top of that, U.S. farmland has scarcity value, as farmland supply has declined nearly 20% since the 1960s. Partly as a result, farmland is a resilient asset class that performs throughout the economic cycle. During the Great Recession, the NCREIF Farmland Property Index was up over 20%.
Unlike publicly traded assets such as stocks and bonds, farmland is an extremely low-volatility asset class that is uncorrelated with public markets. This means that adding farmland to a portfolio creates favorable diversification and lowers overall portfolio volatility, which improves long-term returns.
Nor do investors have to sacrifice returns for these benefits — according to the USDA, farmland has generated an average annual return of 11.5%. An additional benefit of farmland is that it offers investors two income streams: price appreciation when the underlying land is sold and ongoing passive income in the form of rental and crop payments. Finally, farmland prices have historically been closely correlated with CPI, making farmland a popular hedge against inflation.
Fortunately, you no longer have to be as wealthy as Bill Gates to invest in farmland. For a long time, farmland was out of reach for individual investors due to a lack of transparency and high barriers to entry. However, this has changed, and investors now have several ways of reaping the benefits of farmland without investing millions.
One option for would-be farmland investors is to gain exposure through public markets. There are currently two major publicly traded REITs focused on U.S. farmland: Farmland Partners (NSYE: FPI) and Gladstone Land Corporation (NASDAQ: LAND). An advantage of REITs is that they require a low upfront capital investment and can be traded through a regular brokerage account. However, because they are publicly traded, REITs tend to be as volatile as stocks.
An alternative is for investors to buy farmland through a technology-enabled investment platform. One such platform that is making farmland investing more streamlined and transparent is FarmTogether. FarmTogether brings together a multidisciplinary team of investment professionals with more than 70 years of experience in agriculture farmland, and real estate.
Together, the team provides investors with carefully sourced and diligenced farmland investment opportunities. Using FarmTogether’s end-to-end online platform, investors can view opportunities, read diligence materials, choose which properties to invest in and sign legal documents all in one place. Opportunities are available to accredited investors for as low as $15,000.
Importantly, like the Gates Foundation, FarmTogether is committed to sustainability. FarmTogether is a member of Leading Harvest and each of its properties have been enrolled in Leading Harvest’s Farmland Management Standard.
For all these reasons, FarmTogether can be an excellent way of adding farmland exposure to your portfolio. With farmland investing, you get the benefits of above-market returns and low volatility while knowing that you are investing in the future of U.S. agriculture.
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.