SINGAPORE (Reuters) - Fund manager Merricks Capital is cultivating strong returns in new niche agriculture supply-chain investments that are overshadowing the single digit returns the firm has made in its traditional trading arena.
Chief Executive Adrian Redlich said agribusiness investments ranging from farming to food companies have posted 20 percent returns last year and so far in 2018. This compares to "small single digit returns" from trading strategies, he told Reuters in an interview.
Melbourne-based Merricks Capital is one of the few global agriculture-focused funds that have found a new source of returns. Low prices and volatility in agricultural markets have strangled revenues across the sector and triggered the collapse of high-profile rivals.
Record world food production over the past few years depressed global crop prices, hammering the earnings of agribusiness traders that rely on crop price uncertainty to generate revenues.
Cargill's subsidiary Black River Asset Management LLC, a private equity firm focused on food and agriculture, closed in 2016, while hedge fund Edesia Asset Management BV, run by grain merchant Louis Dreyfus, shut last year.
The S&P GSCI Agriculture Index <.SPGSAG> - the most-watched index fund that tracks a basket of agriculture markets - gained 3 percent over the past year, and 6 percent year to date. That's well below Merrick's 20 percent return on the $500 million it has deployed on the global food supply-chain.
For a graphic on Commodity Index Fund Performance, see - https://tmsnrt.rs/2MA5VJl
"A big part of our fund in the last 18 months has been where we were providing solutions to farmers, exporters and consumers," Redlich said.
The company has been working with "everything from farm gate to food plate," with deals ranging from financing wheat growers in Australia to hamburger makers in the United States.
In the case of the burger maker, Merricks provided financing for the beef purchases and fixed weekly beef prices for the following year, helping to reduce uncertainty in both supply and cost for the customer.
Merricks is now eying deals in pork after global prices slumped amid the U.S.-China trade war to offer attractive buying opportunities for consumers looking for a way to lock in prices and build up inventory.
"They are less concerned about if we are making a margin or not. We are giving them the flexibility to take advantage of (price) dislocation. Most banks are looking at the uncertainty and saying, do they want to finance inventory at all," said Redlich.
Last year, the company took advantage of very low wheat prices in Australia.
"We worked with exporters who did not have cash to procure wheat; we purchased that wheat and we sold forward - we had a very steep forward curve in contango."
The fund manages about $2 billion, with investments mainly from pension funds and financial institutions. Besides commodities, Merricks Capital also invests in property and equity markets.
Redlich said the fund has been "fairly unique in transitioning our trading capital to financing capital."
"We have moved away from doing research and taking speculative positions; we are now taking positions to facilitate commerce."
(Reporting by Naveen Thukral; editing by Gavin Maguire and Richard Pullin)
