At first glance, it might seem odd that a guy who grew up in the fisherman’s paradise of Lunenburg, N.S., would end up in charge of Canada’s largest investment fund dedicated to farmland.
But Tom Eisenhauer, who spent years running his own successful private equity fund in Toronto, knows a good investment when he sees it. And when the global financial crisis of 2008 threw traditional markets into turmoil, he started looking around for a safer harbour to invest some of his own – and others’ – retirement savings.
“I began to think there’s got to be a different kind of asset out there to invest in that’s a little lower volatility, a little lower risk,” says the president and CEO of Bonnefield, the Ottawa- and Toronto-based fund that now owns more than 110,000 acres of farmland worth in excess of $750 million.
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As it happens, Eisenhauer’s wife grew up in the southwestern Ontario town of Paris, and her uncles owned farms nearby. During a visit to her hometown after the financial crash, Eisenhauer was riding his bike on a rural road when an idea struck him.
“No matter how bad things get, people still have to eat,” he remembers thinking. “I became completely fascinated with the idea of investing in farmland.”
A “deep dive” into global trends soon confirmed his faith in agricultural land as an investment vehicle. He quickly discovered such funds were commonplace in Europe, South America, the United States and Australia, but were virtually unheard of here in Canada.
“I started to smell an opportunity,” he says.
Eisenhauer, who concedes “he didn’t know the first thing about farming” when he hatched his plan, contacted two business acquaintances from Ottawa: Jan and Steve Kaminski, who run private equity firm Colonnade Investments. The Kaminskis had a stake in a number of enterprises, including Manderley Turf Products, an Ottawa-based sod farm.
“They had a crash course in farming as a result of that,” Eisenhauer says. “I thought, ‘Hey, here’s somebody who knows something about farming.’”
Like Eisenhauer, the Kaminskis had seen how Canadian farmers’ efforts to expand their businesses were often frustrated by a lack of access to capital.
Traditionally, Eisenhauer says, farmers in this country have had just two sources of financing things such as paying down debt, funding further expansion, preparing for retirement or planning the succession of the family farm: sweat equity and bank debt.
“There’s not much in between,” he says. “So if you’re a farmer who’s heavily indebted, what do you do?”
He felt he had the answer. In 2009, Eisenhauer partnered with the Kaminskis to launch Bonnefield, a fund designed to buy land from farmers in need of cash and lease it back to them.
Bonnefield now works with more than 100 farm families in seven provinces, and its holdings stretch from northern B.C. to the Annapolis Valley in Nova Scotia. Leases typically last 10 years, at which point the farmer has the option of buying back the land or renewing the agreement.
In addition, Bonnefield offers resources to farmers such as tutorials on agricultural economics and considers itself a financial partner to those who work the land.
“We don’t invest in (farmland) to flip it to developers or turn it into Costcos or what have you,” Eisenhauer says. “We’re buying the farmland to protect it and keep it as farmland.”
Investors skeptical
In return, Bonnefield’s investors acquire an asset that tends to appreciate over time and, according to Eisenhauer, stands to become even more valuable in the coming decades as global warming threatens agricultural economies in many other parts of the world.
Bonnefield’s first fund provided its investors with a 13 per cent annualized return, and a second fund in 2013 produced 11 per cent returns.
Still, the Canadian financial community isn’t known for its penchant for risk-taking, Eisenhauer notes dryly, and it took a while for investors to warm up to Bonnefield’s concept. After two years, the initial fund had raised just $5 million.
“I will admit it took us a while to convince – particularly the big institutions in Canada – that this is a really fantastic asset that you should own. But they gradually came on board.”
Today, Bonnefield’s backers include some of the country’s biggest pension funds and a bevy of high-net-worth individuals – all of whom must be Canadian to meet regulations in several provinces. The firm now employs nearly two dozen people, about two-thirds of them at its south-end Ottawa office.
Bonnefield’s lease negotiation team is led by vice-president Roy Farrer, who grew up on a grain farm outside Drinkwater, Sask., about 30 kilometres southeast of Moose Jaw. Farrer says it took his father 30 years to accumulate the 10,000 acres on which he now cultivates wheat, canola and lentils among other crops.
“If you’re forced to just finance that expansion purely with debt, then it’s a really slow grind to get the acres you need to be to be at that efficient size for the size and scale and cost of the equipment,” explains Farrer, who earned a commerce degree from Queen’s University and joined Bonnefield five years ago.
Many farmers lease land from friends and relatives as a way to increase their growing capacity, but that has pitfalls, he adds.
“A typical farmland lease is a year on a handshake with your uncle,” Farrer says. “A lot of people have good relationships with their family, but a year on a handshake with no paper and heaven forbid that person passes away, or they have an insolvency situation or even … divorce, what happens to your rights to the land on a handshake agreement? Well, you don’t really have any.”
Eisenhauer says the concept is gaining momentum, fuelled largely by positive word-of-mouth in the close-knit farming community.
“We have far, far more demand from farmers for our sale-leaseback financing than we have the capital to provide,” he says. “Those farm families just don’t have the connections and the contacts to Bay Street that would have them in front of massive institutional investors. They’re two different worlds. That’s the bridge that frankly we’ve been successful in creating.”
