Hedge fund managers pour assets into farmland as doomsday food scenario approaches
Neev M. Arnell
May 25, 2011
Going back to the land has always been thought of as a thing for hippies, eco-nuts, and doomsday survivalist, but now hedge fund managers are jumping on the bandwagon too.
The New York Observer recently spoke to such a hedge fund manager working on a fund that ranks as approximately the 15th largest farmer in America.
The media first picked up on the land investment pattern in 2008 in the February Times of London piece, “The Hedge Fund Manager Who Bought a Farm,” which detailed a British hedge fund manager’s attempt to play off the rising prices of grains in order to get a hold of local farmland. It was followed shortly by coverage by the Financial Times that said hedge funds and investment banks were “swapping their Gucci for gumboots”.
Today, the increase in the purchase of farmland both in America and abroad is so drastic that in February, Thomas Hoenig, the president of the Federal Reserve Bank of Kansas City, warned against the possibilities of a farmland bubble.
A January study commissioned by the Organization for Economic Cooperation and Development estimated the amount of private capital currently committed to farmland and agricultural infrastructure at $14 billion. It also estimated that future investments will “dwarf” what’s currently being thrown into land by two to three times and projected the amount of capital potentially entering the sector over the next decade to go beyond $150 billion.
The recent spike in investments of farmland is being driven by fear. The hedge fund manager and others see a doomsday scenario brought on by a dollar crisis, out of control inflation and an uncertain political climate both domestically and globally.
“The CPI supposedly today is something like 1.5 percent. We think the actual rate of inflation is something closer to 6 or 7 percent on an annual basis,” said the hedge fund manager. “It’s also not about what it’s been over the last 10 years; it’s about what it’s going to be over the next 10 years.”