Each fund manager or fund advisor has been invited to answer a series of questions about their own funds as well as the market in general. We sat down with Alex Lawry-White and Nathan Hadlock to find out more about the Terra Farmland Fund.
Could you please start by giving us some background about yourself and the team working on Pela Terra Fund?
Our core team is a diverse group of six talented individuals from STAG Fund
Management and Impacto Pela Terra, each bringing distinct expertise.
- Sean Down, President of STAG, is a chartered accountant in both the United Kingdom, and South Africa, with extensive experience in those countries and Malta.
- António Pereira, Vice-President of STAG, is an expert on the Portuguese Financial Markets Regulator, as well as a private wealth management lawyer.
- Gisela Martins, Director and Board Member of STAG, is a practicing lawyer with more than 20 years of experience, with deep knowledge of Corporate and Taxation laws, having been involved in several M&A projects.
- Mr Hadlock, Director of Impacto Pela Terra and board member of the Investment Advisory committee, is a scientist and tech entrepreneur from San Francisco who brings expertise from his farming family as well as a passion for sustainable farming.
- Alex Lawry-White, Director of Impacto Pela Terra and board member of the Investment Advisory committee, also comes from an agricultural background. Alex spent his last 10 years launching companies in London, ultimately leading a real estate investment business in the south of England and across Portugal.
- Rachel Zedeck, Director of Sustainability at Impacto Pela Terra,is a farmer, speaker and internationally recognized impact entrepreneur with over twenty years of hands-on experience in agribusiness and in bringing innovative approaches to impact investing.
Why did you decide to create Pela Terra Fund?
Aside from the entrepreneurial satisfaction of improving the golden visa fund market, the Pela Terra project holds great value to us in the form of “Investment with Purpose”. Agricultural investment provides a powerful platform for much needed environmental progress for mankind and meaningful employment for communities in Portugal.
Aside from climate concerns, reversing the downward trend in soil health is essential to mitigate biodiversity loss, desertification (soil erosion), water table pollution, a drop in our food nutrient-density, human migration, and a raft of other side effects of
industrialized farming which are patently unsustainable.
Has the management/advisory team invested in Pela Terra Fund and, if so why? If not, why not?
Yes, we have invested personally into the fund, also funding the foundation and first two years of operations around the project. Not only do we feel that it is important to have our incentives in line with investors but we truly believe in the mission behind this work.
We have chosen this work to make an impact on the environment, rural communities, and Portugal.
The fund’s chosen investment profile is Agriculture and, in particular, the proactive regeneration of arable land, which is a unique focus when compared to other Golden Visa funds currently operating in the market. Please explain your thought process behind this decision.
This answer comes in two parts.
First, it comes down to risk.
We know that most investors, above all else, want to be absolutely certain their principal capital is coming back to them, on time, ideally with solid returns. The real estate market
here in Portugal is at the end of a boom cycle and is visibly distorted by years of Golden Visa intervention. A proposal with a genuinely rock-bottom risk profile needs to invest in an asset class that isn’t subject to cycles, in the way that real estate.
Farmland has a lower volatility rating than US government bonds. A lack of retail investors and emotional buying means the market is much more linear. It’s somewhat correlated to population growth. There isn’t a single down-year in farmland prices since aggregate records began, 31 years ago. That makes farmland a much safer place to protect your principal capital than a fluctuating real estate market.
Second is the social perspective.
We believe the Golden Visa market is broken. Investment into GV projects rarely impacts the average citizen positively and often have negative effects of displacing populations from the major urban centers and pouring carbon into the atmosphere to provide more unaffordable luxury apartments. But the regulation allows us to generate consistent returns via a better alternative, where we create reliable jobs in rural communities, improve the land we steward, and contribute to food security the environmental turnaround so badly needed in agriculture.
How would you describe Pela Terra Fund’s risk profile: Conservative, Moderate, or Ambitious?
The Golden Visa rules state that a qualifying investment must be held for just five years but Pela Terra Fund lifetime runs for longer. Could you please explain the fund’s lifetime including the launch date and subscription period?
The process has a few months of bureaucratic delay at the start, and again at the end. So it actually takes longer than 5 years to obtain a GV. 7 years is the most efficient balance of convenience for our investors.
On average, how long does it take to onboard an investor into the Pela Terra fund and what are the main obstacles in the onboarding process?
The average is around 4-6 weeks. The majority of the time is consumed with filling out the documentation and opening a bank account, which mostly falls to an investor themselves and their lawyer.
For US investors the FBI background check (to certify a lack of criminal record) can take up to 4 weeks so we advise these investors to start this process as soon as possible.
In general, some investors are cautious because of the funds’ lock-in periods. How do you plan to deal with investors who wish to exit the Pela Terra Farmland fund before its full lifetime?
Participation units can be resold, allowing investors flexibility around when to leave. The fund can only divulge new participation units up to Jan 2023, so beyond that day, if a new investor wants to join the fund their only option will be to acquire them from an existing investor.
Most investors will stay the distance, in order to obtain citizenship, meaning that an investor who wants to leave will hold the only available participation units, putting them in a strong position to sell them on. The fund itself may also be interested in buying participation units back.
Would you please share examples of the type of investments the Pela Terra Farmland Fund has already made or is currently considering, how you identified them and what convinced you to invest?
Generally we purchase land in approximately 100 ha tranches to benefit from economies of scale on the land.
Our tenants intend are moving towards buying the land back themselves, and are, therefore, usually a big part of the process of selecting plots. We have 4 plots that are different stages of closing.
Many of those considering the Golden Visa are currently comparing funds vs real estate. What advice can you offer to help investors make the right decision for them?
The downsides to real estate:
- We calculate that the same activity in direct-ownership of real estate will cost the owner around 5% per year in taxes and commissions (agency fees, stamp tax, rental income tax, capital gains tax, etc. A fund avoids all of that drag, providing a huge comparative advantage.
- Real estate cycles up and cycles down. Principal investment is much more
protected in our fund than in real estate.
- Real estate cycles up and cycles down. Principal investment is much more
- Diversity of investment:
- Funds such as Pela Terra Farmland have the strategic advantage of being able to diversify investments into much safer sectors than real estate.
- A fund can, not only be invested into from afar but is also managed by a professional at very low cost.
- Overheated market:
- Apartments listed near the investment minimum are, at this stage, significantly over-valued.
For people who are unfamiliar with investing in funds and may even be nervous about learning, what advice would you like to give them?
The European Union has some of the strictest consumer and investor protection laws in the world. As part of the EU Portugal is a highly regulated financial market. Our activities are subject to multiple separate layers of scrutiny. For the Pela Terra Farmland fund:
Independent Scrutiny Layer 1:
European Central Bank The European Union is extremely protective of its residents, including our investors. Through the ECB it enforces the highest standards of regulatory compliance for all financial institutions, including Pela Terra Farmland.
Independent Scrutiny Layer 2:
Bank of Portugal The Bank of Portugal adds additional layers of legislative protection for investors into Portuguese institutions. As Golden Visa holders our investors enjoy the full force of that protection.
Independent Scrutiny Layer 3:
Portuguese Securities Market Authority (CMVM) The CMVM independently regulates and scrutinizes the fund management institution (STAG Fund Management, SCR, S.A.), the fund itself (Pela Terra Farmland). Transparency is required to maintain institutional and individual accreditation.
Independent Scrutiny Layer 4:
Deloitte auditors Deloitte independently audits Pela Terra Farmland, notably at the level of its accounts and investments made, and reports transparently every year.
Independent Scrutiny Layer 5:
External valuation of investments STAG Fund Management exercises an optional policy of insisting on external valuation and audit of all investments, prior to investing. This offers both STAG and its investors additional peace of mind that investments are being thoroughly analyzed and priced correctly.
Considering the incoming Golden Visa rule changes on January 1st 2022, what advice would you give to investors who are currently looking into the program?
If you are concerned about investing on the lower threshold of €350k (before it increases to €500k at the end of 2021) start the process as soon as possible. Realistically, those starting the process in November are unlikely to make it. More and more investors are subscribing as we get to the deadline so it will only get harder to process your application.
What is your outlook for Portugal from both an investment and lifestyle perspective over the coming years?
Portugal is changing fast as companies, entrepreneurs, and investors from all over the world are arriving in droves each month. This is a magical time to create links to the country, and the fantastic quality of life is a testament to that.
Within the EU Portugal has the greatest growth potential. It’s the only Western European country with masses of untapped potential to put us in the next 10 years. Also, the weather, coastline, and favorable tax conditions contribute to the migration of highly skilled professionals, tech-focused workers, and thought leaders to Portugal.
Is there anything else you would like to share with potential investors?
As well as protecting your capital in a highly stable asset class, why not put your investment to work nurturing something which aligns with your core values?
In contrast to other funds, an investment in Pela Terra Farmland also brings a wonderful personal legacy. When you hand passports to your family, they will understand that you and they have made a meaningful difference to the country they can call home.