Bill Gates has taken on many roles over the course of his career: affable tech nerd, aloof billionaire, tennis player, visionary philanthropist. Before divorcing, Bill and Melinda Gates added a new title to that list: largest owners of US farmland.
One way to get rich is to observe what rich people do with their money. Therefore, I think you'll enjoy this look into why Bill Gates is buying so much U.S. farmland. If buying farmland is good enough for Bill and Melinda, perhaps buying farmland is good for the rest of us as well.
The following is a post by FarmTogether, a leading farmland real estate investing platforms and Financial Samurai content partner. As someone who appreciates owning real assets, please enjoy.
Bill and Melinda Gates’ Unrivaled Farmland Portfolio
In January 2021, The Land Report broke the news that Bill and Melinda Gates are now the largest private owners of US farmland. The two own 242,000 acres of farmland through their investment manager Cascade Investment LLC. This puts the Gates’ ahead of the second largest owner of farmland, the Offutt family, by over 50,000 acres.
Bill and Melinda Gates own other real estate as well. In addition to farmland, they own 25,750 acres of transitional land and 1,234 acres of recreational land. Their total land holdings equals an astounding 268,984 acres. Of this, the largest holdings are in Louisiana (69,071 acres), Arkansas (47,927 acres) and Arizona (25,750 acres).
Cascade Investment Buying Up Farmland
Cascade Investment, Bill and Melinda Gates' investment arm, has been buying up US farmland for almost a decade. In 2014, according to the Wall Street Journal, the fund owned “at least 100,000 acres of farmland in California, Illinois, Iowa, Louisiana and other states.”
Cascade’s single largest investment was made in 2017. The fund acquired $520 million of farmland assets from the Canadian Pension Plan Investment Board (CPPIB), a major Canadian pension fund. This collection of holdings was previously owned by the Agricultural Company of America (AgCoA). It accounts for the majority of Cascade’s farmland acreage today.
At the time AgCoA was acquired by CPPIB in 2013, it was one of the leading institutional investors in row crop farmland in the United States.
In 2018, Cascade followed this acquisition with the $170 million purchase of around 14,500 acres of prime Washington farmland. The seller was John Hancock Life Insurance, another major institutional investor.
Many in the media speculated that Gates’ purchases may have been part of a wider focus on sustainability in agriculture. The Gates Foundation has been investing in agriculture for over 10 years. Their investments include grantmaking to promote high-yield, sustainable agriculture, and research into the development of climate-resistant crops.
Others note that Cottonwood Ag Management, one of Cascade’s subsidiaries, is a member of Leading Harvest, a non-profit created to promote sustainable agricultural practices.
Why Is Bill Gates Buying Up So Much Farmland?
Thus, many people wonder why would a tech billionaire like Bill Gates be buying up something as seemingly low-tech as farmland? As it happens, farmland has many qualities that make it a good option for investors looking to branch out from traditional publicly traded investments.
Let's look at five investing benefits of farmland.
Farmland Investing Benefit #1: Strong Historical Returns
First and foremost, US farmland offers solid returns. Between 1992 and 2020, farmland offered an average annual return of 11.0%. This compares favorably to an average annual return of 8.0% from the stock market.
The returns from farmland come in two forms. 1) current income from rental and crop payments. And 2) price appreciation from the sale of the underlying asset.
Farmland Investing Benefit #2: Passive Returns
Farmland provides an attractive source of passive income, which allows investors to diversify their income streams.
Second, the price of crop payments fluctuates with the price of commodities. This means farmland functions as an effective hedge against inflation.
Farmland Investing Benefit #3: Diversification
A third benefit of farmland is that it offers excellent diversification. Bill Gates may have made his billions in technology. However, he also understands the importance of investing in multiple uncorrelated asset classes for building and preserving long-term wealth. It is estimated that more than half of Bill Gates' wealth is invested outside of technology.
The performance of farmland is uncorrelated with the performance of other major asset classes. Those include stocks, bonds, commercial real estate, and gold. Shocks that negatively impact the performance of these asset classes often have little or no impact on the performance of farmland.
For example, during the Great Financial Crisis, the maximum decline of the S&P 500 was -46%. In the same time period, the NCREIF farmland index increased by 17%.
Farmland Investing Benefit #4: Low Volatility
Fourth, farmland is an extremely low-volatility asset class. As shown in the chart above, stock market volatility was 17.2% between 1992 and 2020. In contrast, the volatility of US farmland was only 6.9%. This difference of volatility was illustrated during the first few months of the Covid-19 pandemic.
In Q1 2020, the stock market declined by -19.8%, as pandemic lockdowns led to widespread economic curtailment and investor fear. The next quarter, the market rebounded nearly as quickly, delivering returns of 20.0%. In contrast, the impact of Covid on farmland returns was significantly more muted. Farmland returns declined to -0.1% in Q1 2020 and increased to 0.6% in Q2 2020.
Farmland Investing Benefit #5: Sustainability
Fifth, investing in farmland is an opportunity to invest in an asset that benefits the global economy and increases sustainability. According to National Geographic, farms could double or triple their yields by incorporating technology and sustainable farming approaches. As a result, farmland investing is vital in providing food for the planet's anticipated 9 billion people.
Sustainable farming practices also increase the value of the land, which creates a benefit for the planet and investors. However, investing in new technologies requires upfront investment. For this reason, investing in farmland is a win-win for farmers, investors, and the environment.
Farmland Investing Is No Longer Just For The Ultra-Wealthy
Fortunately, you don’t need to have Bill Gates’ level of wealth in order to invest in farmland. Technology-enabled investment platforms like FarmTogether are creating opportunities for accredited investors to get started in farmland investing for as little as $15,000.
FarmTogether’s diverse team of investment professionals curate high-quality farmland opportunities. Using the platform, investors can view the latest offerings, read diligence materials, sign legal documents and manage their investments, all in one place.