Denmark’s DKK89bn (€11.9bn) commercial pension fund AP Pension said it has set up a new fund to invest DKK600m in Danish agricultural land and buildings, targeting returns of 7%.
The fund, called Dansk Farmland, aims to buy farms in Denmark and lease them back on long-term contracts to the individual farmers running them.
Søren Dal Thomsen, managing director of AP Pension, said: “We expect to achieve an attractive return for our customers from the investments in Danish agriculture, at the same time as helping some of the best farmers, who have struggled in vain up to now to borrow the money to buy a farm.”
The planned size of the fund is around DKK600m, the pension fund said.
Its first investment took place around New Year, it said, with the completion of the purchase of a 190-hectare cattle farm in Zealand.
Over the next few months, AP Pension said it expected to buy 10 more farms.
In the current market, Dal Thomsen said the investment would produce an attractive return relative to risk.
“We expect the price of agricultural land to follow inflation, and when everything is taken into consideration and administrative costs deducted, it will leave us with a solid return we expect to be on the right side of 7% before tax,” he said.
Under acquisition terms, AP Pension will own the farm buildings and land, with the farmer signing a 10-year agreement, undertaking to run the farm, including the financing of animals, machinery and business borrowing.
The farmer will pay AP Pension a rent of 5.2% of the amount invested in the land, and 6.5% of the amount invested in the buildings, and will retain business profits.
It said the model allowed the farmer to build up equity to enable him or her to obtain financing for the purchase of the farm when the agreement expired.
Dal Thomsen said the pension fund would safeguard returns by carrying out a thorough review of the economics of farms before investing in them.
“Danish agriculture is today one of the world’s most efficient, and we see great potential in investment in agriculture,” he said.