A TREND among ultra high net worth investors is delivering new opportunities for Australian agribusiness.
A greater portion of their portfolio is being allocated to alternative assets, including agriculture.
This trend is being caused by a range of factors including low interest rates, unsustainably high property prices and uncertainty in listed equity markets.
But one of the potential destabilising factors that is causing this shift is the rise in index funds.
Index funds are portfolios that track the performance of a benchmark index – for example, the ASX200.
In many respects, they are dumb money as zero diligence is done on the underlying companies and they are solely reliant on the portfolio effect to deliver a market return.
They have grown in popularity as multiple studies have shown that index funds have outperformed active funds, after taking into account the considerable fees they charge.
This logic has historically been sound as index funds have represented a relatively small portion of the total market and therefore, the active investors have driven the values of individual stocks and the index funds have just ridden on their coat tails.
But nobody knows what will happen as index funds grow and they are growing very rapidly, from negligible levels three years ago to over US$3 trillion today.
An unintended side effect of this growth could be that share prices are becoming disconnected with their underlying value as more and more share purchases are being driven by market position as opposed to diligence on the underlying company.
This is creating pockets of opportunity for savvy, ultra-high net worth investors who are increasingly seeking out opportunities that are outside listed equities and traditional property such as agriculture.
What this means for you is that there is a growing pool of money looking for direct investments.
If you have a deep understanding of your respective industry and have an opportunity, back yourself. You could realise a step-change in value.
The recurring theme of the high net worth and private equity investors we speak to at Neu.Capital is that they are looking to back experts in their field who have backed themselves.
In other words, if you know what you’re doing and can invest alongside – then there are pools of money that are keen to back you as well.
- Joshua Khoddami is a director at Neu.Capital. Neu.Capital is a marketplace for companies, farmers and farm operators to raise debt or equity outside the big four banks.