Nuveen has an uncommon multibillion-dollar inflation hedge. CEO Jose Minaya explains
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There are conventional methods to hedge towards inflation — issues like gold and TIPS (Treasury inflation-protected securities). There are newer approaches; crypto advocates say bitcoin falls into that camp. However maybe an sudden technique to hedge towards inflation and volatility is investing in farmland.
Jose Minaya is the CEO of Nuveen, a division of TIAA, and he is hoping to reap good points from investing in agriculture property. Right here he’s, in dialog with Leslie Picker.
(The content material under has been edited for size & readability)
Leslie Picker: We have seen some fairly scary inflation readings currently. How does farmland play into that?
Jose Minaya: You realize, that is form of a part of the important thing motive we invested within the asset class. I believe once we began pure assets, the thought was, nicely, how do we offer higher diversification for our personal portfolio, trying to get higher publicity to volatility or defend ourselves towards volatility, after which inflation was a key a part of simply assuming, sooner or later sooner or later, we can be experiencing greater ranges of inflation. How is our portfolio protected towards that? And farmland is an asset class that we felt does each on the volatility facet and the inflation facet, as a result of what attracted us to farmland and what drives the correlation traits is that each demand facet is inelastic by way of folks must eat and the provision facet is inelastic in that they don’t seem to be making any extra land around the globe. And if something, we’ve got a discount in land given what’s occurring from an environmental perspective. And it is a commodity that’s producing on the finish of the day, which is very correlated to inflation.
Picker: Looking on the returns on a risk-return foundation, farmland has outperformed many different asset lessons, most different asset lessons actually, together with indexes just like the S&P and gold and Treasurys during the last 50 years or so. If that is the case, why aren’t there extra funds and extra property behind this? It is my understanding that solely about 80% of farmland has been institutionalized at this level. What do you suppose are among the key hurdles?
Minaya: Properly, if you consider farmland on a worldwide foundation, I’d say nicely over 90% of it’s nonetheless within the arms of people and households. So it is an asset class that’s nonetheless very nascent by way of its entry to capital markets. I all the time evaluate it to actual property – we’re a big actual property investor as nicely – you return 100 years, it was largely within the arms of personal buyers, proper? And also you constructed a constructing otherwise you constructed actual property as a result of it is advisable to put folks in it. Right this moment, it is bought much more entry to capital markets, you may get public publicity to actual property. That is form of the place I consider the trail goes for farmland. That institutional possession has elevated, I believe considerably during the last decade, but it’s nonetheless just about in personal arms. So a way more inefficient market from a capital markets perspective, however once more, in there lies lots of alpha for us. It is why we like asset lessons that aren’t as environment friendly and we are able to drive extra returns given the danger we’re taking.
Picker: You talked about briefly that the footprint of farmland itself is shrinking because of local weather change. I imply, we hear day by day on the information fires, destroying vineyards, floods, destroying farms, scorching temperatures, robust storms, droughts. I imply, does not all of that concern you as you place a lot cash behind this asset class? I imply, this asset class is altering dramatically by the yr.
Minaya: I believe it is the No. 1 threat issue that we take a look at in farmland. One of many issues for us once we determined, nicely, we’re investing in farmland, the place are we investing it? The primary one was [from a food] safety perspective. We needed to spend money on the most important grain exporting areas around the globe – the U.S., Brazil, Australia, components of central Jap Europe. Once more, we do not need to take care of meals safety points, we need to take care of the areas which are producing to feed your complete planet. The opposite piece that basically ties into farmland is water and there is totally different threat profiles. You may go to locations which have a well-established profile for having water. These returns are going to be quite a bit decrease. You may produce other locations which are extra uncovered to floods at occasions, to droughts, to fires. These are going to doubtlessly be greater return for decrease threat. For us, we play in that space the place we all know the infrastructure is in place, we’ve got extra water, we pay for that, which is why our returns are in all probability extra within the excessive single digits, mid-single digits, but very steady with decrease dangers because it pertains to local weather change.
Picker: Are there particular areas inside farmland that you just see alternative proper now greater than different particular crops or areas or, or issues that you are looking at that you just suppose present the most effective risk-return profile?
Minaya: I believe via rising our portfolio we discovered totally different areas of farmland – and it is fascinating – there’s totally different ranges of threat and return, proper? Your most conventional one is, I purchase land within the Midwest in Champaign, Illinois. And there’s form of the bottom threat profile … it is the place among the finest land on this planet lies. What’s nice about this asset class is there is not any vacancies. We do not have to fret about, “Can this be rented?” We receives a commission at the start of the season so there aren’t any hire defaults. So it is a very, very low threat asset. Now, as we appeared into different components of agriculture, like vineyards, and went to locations like California and stated, “OK, there isn’t a extra acreage to be constructed right here. It isn’t allowed.” The demand for wine consumption goes up and what we’re seeing within the demographics. Our means, then to have a look at issues like vineyards then took us from a mid-single-digit return to a low double-digit return. Little bit extra threat, as a result of now you have bought just a little bit extra capex to take a position, however issues like vineyards turned very enticing. Almonds was one other one the place we stated, “OK, this is an finish crop that’s rising in demand, as a result of the demand is from Asia.” So we may be in a spot like California, the place I believe we are the third-largest almond grower on this planet, the demand is coming from Asia, so we are able to tie to that publicity of a rising demand, rising markets in rising markets in locations like China, in India, but we’re doing it via a really protected funding within the U.S. These are the form of issues that we discovered actually enticing.
Picker: As an institutional investor in farmland, you’ll be able to acquire principally a coupon or a yield from hire from the farmers who lease from you. And then you definitely are also capable of generate returns via capital appreciation. What about [the] common investor? Is there a means for anybody who’s watching this to get entangled on this asset class, particularly as a diversifier and inflation hedge that you just talked about earlier?
Minaya: Sure, I believe the primary means that buyers get publicity to it and it is a very boring means, if you consider our steadiness sheet which provides assured earnings via annuities, lots of that is embedded within the diversification of that asset class. We have seen what’s occurred now with the Safe Act and the concept you may see extra assured earnings or secured earnings in 401(okay)s – very boring – however that is the diversification that performs into, provides you entry to most of these asset lessons. That being stated, Leslie, sure, that is nonetheless very a lot in institutional arms. We simply launched final yr our first open-ended fund that gives extra liquidity. It is now obtainable in additional retail channels and particularly within the U.S. and U.S. retail, U.S. excessive internet price channels. So once more, when you return to actual property, that is the way it began, personal arms, extra institutional arms, you began seeing it extra within the wealth channels. Finally, you noticed REITs, public REITs. You are beginning to see that occur in agriculture. Once more, that is a part of what we love – the truth that it is broadly obtainable, extra inefficient, provides us extra returns. That liquidity is coming and the totally different autos are coming behind it.
— Ritika Shah contributed to this text
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