White House to Begin $10 Billion Rural Investment Fund

Source: By ALEXANDRA STEVENSON, New York Times • Posted: Friday, July 25, 2014

Tom Vilsack, the agriculture secretary, greeting Carlen Overby, left, whose well in Farmersville, Calif., went dry. California would be an area of investment.
Tom Vilsack, the agriculture secretary, greeting Carlen Overby, left, whose well in Farmersville, Calif., went dry. California would be an area of investment.Credit Juan Villa/Visalia Times Delta, via Associated Press 

Wall Street is looking for ways to invest in America’s heartland, and the government is ready to play matchmaker.

The White House Rural Council will announce plans on Thursday to start a $10 billion investment fund that will give pension funds and large investors the opportunity to invest in agricultural projects. Those include wastewater systems, energy projects and infrastructure development in rural America.

“We’re the eHarmony.com of infrastructure and business investment,” the agriculture secretary, Tom Vilsack, said, referring to the online dating service.

“We’re going to be a connector,” he added. “This is a new role for the U.S. Department of Agriculture.”

The fund, called the Rural Infrastructure Opportunity Fund, will be backed by CoBank, a cooperative bank and a member of the Farm Credit System, a government-sponsored network of banks that lend to the agriculture industry. CoBank has committed the first $10 billion to the fund.

Capitol Peak Asset Management, an investment firm, will manage the fund’s investments and the Agriculture Department will help find projects for the fund. Investors will be able to make debt and equity investments in individual and bundled projects. They will earn returns on their principal investments along with interest.

The move comes as pension funds and institutional investors, faced with few investment opportunities that yield high returns in the face of low interest rates, have begun to shift large amounts of money into less traditional investments that promise bigger returns like hedge funds and private equity firms. Flows into the hedge fund industry from institutional investors are at all-time highs. Faced with what he described as “extraordinary” demand from local communities in rural America for capital, Mr. Vilsack last year enlisted the help of Matthew McKenna, a former executive at PepsiCo, to help find a way to attract Wall Street and large institutional investors. Through the process, Mr. McKenna discovered that investors with big war chests were interested in making investments in more than just one or two individual projects at a time.

As a result, the fund will offer investors the opportunity to put money into bundled projects. One specific area where investment is needed is in California, Mr. Vilsack said, where the state is facing one of its most severe droughts on record.

“There is a business opportunity there because people will pay for water,” he added.

Since the 2008 financial crisis, large pools of pension money have flowed directly into farmland and agricultural investments. Some Wall Street investors are trying their hand at creating different ways to tap demand from both large pensions funds and individual investors.

One group of investors has begun to buy farmland through real estate investment trusts — including the American Farmland Company, Farmland Partners and the Gladstone Land Corporation— that combine crops and land into an asset class for ordinary investors to buy.

So strong is the demand from some corners of the financial world that agricultural conferences once attended mostly by farmers and others in related fields are now crowded with institutional investors, venture capitalists and hedge fund managers.

Mr. Vilsack will announce the new Rural Infrastructure fund on Thursday at a conference in Washington. Nearly 600 financial executives, investors and government officials have convened for the White House’s Rural Opportunity Investment Conference. The list of speakers for the event includes Treasury Secretary Jacob J. Lew and Ken Wilson, vice chairman of BlackRock, the world’s largest asset manager.