Source: New York Times
By ALEXANDRA STEVENSON
April 29, 2015
Tom Vilsack, the secretary of agriculture, has traveled to New York and San Francisco, knocking on the doors of some of the country’s biggest investors, including BlackRock, Blackstone and GE Capital.
His pitch: Invest in rural America.
On Wednesday, Mr. Vilsack will announce his agency’s latest push to make that pitch more compelling. The United States Department of Agriculture will support two private investment funds that will together raise $125 million to buy stakes in businesses across rural America.
The funds, called Rural Business Investment Companies, are part of a U.S.D.A. program aimed at attracting private equity investments in agriculture-related businesses.
With the agency’s blessing, the private firms will raise capital from the Farm Credit System, a government-sponsored network of banks and lending associations that provide credit to the agricultural industry. The investment funds will also raise money from investors, and collect fees in the process.
It is a somewhat more subdued follow-on to Mr. Vilsack’s pledge last year to play matchmaker for Wall Street with a $10 billion Rural Infrastructure Opportunity Fund backed by CoBank, a cooperative bank. At the time, Mr. Vilsack trumpeted a new role for his agency as a sort of fixer for investors looking to make big bets on agriculture and rural infrastructure.
That fund has started slowly and has not publicly announced any investments. But Mr. Vilsack hinted that might soon change when he said the White House Rural Council was in the process of investing in 10 infrastructure projects involving water treatment, sewerage and water resource systems in small communities across the country.
The financial sector’s interest in agricultural-related investments has grown in recent years, Mr. Vilsack said Tuesday. “There is a growing awareness of opportunity there and a lot of demand from the pension side,” he said in an interview, referring to large pension funds and endowments. He also cited “tremendous demand” from entrepreneurs and venture capitalists.
The U.S.D.A. is working to get big private money behind agricultural investments as large institutional investors, like pensions funds, are searching for investments that offer better returns because interest rates across the developed world are at zero — even negative. In 2013, Mr. Vilsack enlisted the help of Matthew McKenna, a former PepsiCo executive, to help find a way to tap the swelling coffers of pensions and private money.
Rural Business Investment Companies were created by Congress in 2002 to promote job creation and economic development in rural America. Originally, every dollar raised by such an entity would be matched with three borrowed dollars guaranteed by U.S.D.A. The managers of these companies were required to pitch a specific rural area where they wanted to invest and demonstrate how their investment would benefit the local community.
But in 2005, Congress cut funding for the program.
“We’ve resurrected this tool as a way for getting additional capital for equity financing,” Mr. Vilsack said. Today, the entities are not leveraged, he added.
Advantage Capital Partners became the first firm to create a rural investment company last year and has raised $154.5 million. This year, it invested in Iowa Cage-Free, a company that specializes in building layer houses for cage-free egg production, and American Botanicals, which manufactures and supplies herbs and botanical products.
The two latest funds to be announced by Mr. Vilsack include Meritus Kirchner RBIC II, which is managed by Grady Vanderhoofven and will raise $100 million, and Innova Ag Innovation Fund, which is managed by Jan Bouten and will raise $25 million.
The managers in each rural investment company take a percentage, usually about 2 percent, of the money raised annually as a management fee, similar to private hedge funds. They also take part of the returns each year. This so-called incentive fee is usually 20 percent.