Front Street\'s Fund Focuses on Public Equities |
Date: Tuesday, April 1, 2008
Author: Michael S. Fischer, Senior Financial Correspondent, Hedgeworld.com
TORONTO (HedgeWorld.com)—Front Street Capital will launch the Global Agri Fund in May, according to Frank Mersch, the firm’s co-founder and co-chief investment officer. The long-biased, long/short fund will target publicly traded global equities in agriculture. Up to 10% of the securities in the portfolio will be illiquid, but those will either be in their immediate pre-initial public offering phase or have a path to liquidity within six to 12 months of the fund’s investment, said Mr. Mersch. Front Street Capital is an alternative asset class management firm with approximately $3 billion under management in four areas: energy and power, mining funds, agriculture and diversified Canadian equities. In December, the firm set up and raised $150 million in an agricultural company called the Ceres Global Ag Corp. An investment company listed on the Toronto Stock Exchange, Ceres can invest in public companies, acquire companies and make private equity-types of investments, according to Mr. Mersch. He said he and his colleagues structured Ceres because they see a big opportunity in the coming monetization of private agricultural companies or the spinning out of the agricultural divisions of big companies; Reliance in India is one candidate to do this, he said. In addition, he said, a large number of conglomerates whose founders are nearing retirement have no succession plans in place and so will offer opportunities to investors. The new Global Agri Fund will invest pari passu and pro rata with the portfolio of public securities in Ceres, according to Mr. Mersch. He said the new fund is an extension of the current commodity cycle. Earlier this decade, the firm started an energy fund in 2001–2002 and a mining fund in late 2003, early 2004. “The same dynamics that occurred in those areas started a year ago in agricultural areas, when you started to hit pinch points, where supplies were dwindling,” he said. “For example, where previously wheat was abundant, now inventories are down to 14 to 17 days, so they are very susceptible to shocks to system.” He said the firm’s agricultural portfolio has a number of positions in grain-handler companies, such as the old Saskatchewan Wheat Pool, now called Viterra Inc. Mr. Mersch said Front Street Capital has around $250 million invested in 65 names in the agriculture space through Ceres and allocations from its other products. The firm’s current focus is 30% to 35% in fertilizers, 25% to 30% in equipment providers, 15% in areas such as seed technology and the remainder in special situations related to storage, transportation and logistics. Geographically, the mix is 50% to 55% U.S.-focused; 20% to 25%, and occasionally up to 30%, in Europe; and the remainder in South America, Asia and Australia.
Reproduction in whole or in part without permission is prohibited.
