Agriculture is very much a long-term investment, notes PGIM Real Estate’s head of agriculture, Jamie Shen. Some assets, like trees, can take decades to mature. The story of the Swedish navy planting 300,000 trees on the island of Visingsö in 1831 for use in ship construction alludes to the patience needed to reap returns from certain natural assets. The trees did not mature until the 1970s. While investors certainly are not planning to wait more than a century to reap the returns of their investments, agriculture certainly is a long-term asset class.

“It is important also to think of the portfolio as [being] a diversified portfolio,” Shen says. “Each commodity has its own cycle, and it’s important to build a portfolio with a lot of different commodities so that you can try to smooth that return and meet your objectives consistently over a long time period.”

A Utilitarian Asset Class

According to data provided by Preqin, agriculture-focused private capital funds have returned an average net internal rate of return of 7.4%, according to data of reported funds over the past five quarters. The top quartile of funds has returned 12.5% net IRR, with the bottom quartile at 1.4%.

Agriculture has a fixed-income-like component: It can provide satisfying income returns while also serving as a strong inflation hedge. The asset class is also uncorrelated with stocks and bonds, acting as a strong diversifier, says Jeff Conrad, a partner in and founder and president of AgIS Capital, an asset manager with a focus on agriculture investing.