Farmland Fund Leader Drew Lipke: New Option for Investors Offers Flexibility

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Farmland investing has been increasingly appealing to some people as an inflation hedge. But some potential investors have stayed away because they don’t want their money tied up for too long.

There is now a new option.

“It provides diversification within a single investment vehicle,” AcreTrader Managing Director Drew Lipke told American Farmland Owner from his office in Fayetteville, Arkansas.

Drew Lipke bio:

• AcreTrader – Managing Director

• AcreTrader – Former Director of Investments, former Senior Investment Manager

• Crews & Associates – Former Managing Director-Corporate Credit Analyst

• Stephens Inc. – Former Energy Exploration & Production Equity Research Analyst/Aerospace & Defense Equity Research Analyst/Building Materials & Construction Services Research/Institutional Equity Sales

Proterra Acquires AcreTrader

Last August, AcreTrader -- a farmland investment platform – joined with Proterra Investment Partners, an alternative asset manager that prioritizes investments in the global food system.  

About eight months later, the Proterra AcreTrader Farmland Fund launched. It is an evergreen farmland fund built to give investors access to a broad mix of agricultural assets without requiring them to buy individual farms one at a time.

Lipke said, “The assets are actually held in a private, non-traded REIT (Real Estate Investment Trust), so there are some tax benefits where investors get a QBI (Qualified Business Income) deduction from Section 199A of the tax code.”

Lipke believes that when some investors are looking for alternatives to the volatility of the stock market, they see farmland standing out.

Farmland Ownership Liquidity

One of the realities of farmland ownership is that it has traditionally been illiquid. If you buy a farm directly, you are usually committing capital for years.

Lipke acknowledged that challenge. “With our direct entity investments, your capital’s locked until the farm is ultimately sold,” he explained. “Those are five- to ten-year hold periods.”

The new fund attempts to strike a different balance.

Investors are locked in for 24 months. After that, they can request redemptions quarterly.

“We wanted to balance liquidity with the realities of the asset class,” Lipke said. “The key is, it’s got to be managed liquidity, not forced liquidity.”

That phrase — “managed liquidity” — may be one of the most important ideas behind the entire strategy.

Farmland simply doesn’t trade like stocks. A farm can’t be sold overnight because investors suddenly want cash back. So, the company designed the fund to match redemption requests with incoming capital and long-term asset management.

Lipke said the structure also benefits from experience Proterra already had operating investment vehicles in other sectors.

“We took the uniqueness of the asset class, the more illiquid nature of the asset class, and said, ‘How do we marry the need for some liquidity with that?’” he said.

The result, according to Lipke, is what they believe is the appropriate middle ground between accessibility and stability.

Building a National Farmland Portfolio

The company determines where it wants exposure geographically. Lipke described the strategy as focusing on what they consider “investment-grade farmland” — primarily Class A and Class B farmland located in core agricultural regions.

Lipke broke down the allocations in the portfolio:

• 40% Corn Belt

• 20% Mississippi Delta

• 15% Pacific Northwest

• Remaining allocations spread across the Northern Plains, Lake States, Georgia, the Carolinas, and select western regions

“We target investment-grade farmland,” Lipke said. “And we intend to replicate, on a go-forward basis, the same portfolio that we’ve built to date.”

That regional diversification is one of the biggest selling points for investors, Lipke believes, who may not want all their exposure tied to one crop or one geography.

But Lipke said the real advantage comes from relationships with operators.

Over the years, AcreTrader and Proterra built a network directly with farmers across the country. In many cases, those operators are looking for outside capital when farmland tied to their operation comes up for sale.

“A lot of times an operator will have a landlord who’s selling,” Lipke explained. “If they can’t buy it themselves, they need somebody to step in.”

He added, “I often jokingly say we’re kind of ‘1-800-I-NEED-AN-INVESTOR.’”

That network, he said, is a major reason why the company has concentrated holdings in the regions where it currently operates.

Where Farmland Fits in a Portfolio

One thing Lipke repeatedly emphasized is that investors must understand farmland is still a long-term investment.

“Step one is make sure you understand the liquidity profile of farmland,” he said. “It is not a liquid investment.”

Still, he argues farmland compares favorably to many traditional asset classes when measured by volatility.

Lipke pointed to USDA-based historical data showing farmland returns around 9% annually since the late 1990s.

“It’s that limited volatility and the lack of drawdown in farmland values that is a key consideration,” he said.

In other words, farmland may not deliver the explosive upside of equities during a bull market, but historically it also hasn’t experienced the same gut-punch declines investors see during stock market crashes.

Lipke believes that makes farmland particularly attractive for investors looking for something between fixed income and equities.

“We would argue farmland sits nicely as a lower-risk alternative compared to more volatile asset classes such as equities and gold,” he said.