With $7.4 trillion in assets under management at the end of last year, BlackRock is often said to be the biggest investment business in the world. And lately, it has been turning more of its attention to foodtech.
The New York-based firm launched an ag-focused fund, BGF World Agriculture, in 2010. The $100 million vehicle was tasked with investing in areas such as agrochemicals, farm equipment, ‘soft’ commodities, biofuels, and arable land.
Ag is by no means the sector in which to make a quick buck. For BlackRock’s dedicated fund, returns and growth alike were lower compared to other areas, while reliance on commodity prices meant heightened uncertainty for the fund and its investors.
Seeking a smoother ride and better prospects, last March the BlackRock team decided to broaden the fund’s remit to a more generalized human nutrition theme. This repositioning loosely coincided with BlackRock adopting a more vocal commitment to sustainable investing – as well as Covid-19 and the myriad food supply chain issues it has thrust into the spotlight.
In his annual open letter to the world’s CEOs back in January, BlackRock chairman Larry Fink said the firm would henceforth put sustainability at the center of its investment decisions.
“Our investment conviction is that sustainability and climate-integrated portfolios can provide better risk-adjusted returns to investors,” he wrote. “And with the impact of sustainability on investment returns increasing, we believe that sustainable investing is the strongest foundation for client portfolios going forward.”
The firm will no longer invest in companies that “present a high sustainability-related risk,” he added.
Nevertheless, BlackRock’s sustainability shift has faced difficult questions from some quarters. Its ESG-themed index funds and exchange-traded funds have been claimed to be among the worst for deforestation risk in an analysis by Trase; though BlackRock told clients in May that it’s “working with index providers to expand and improve the universe of sustainable indices” to enhance the sustainability credentials of its non-managed fund offerings, according to Expert Investor.
The firm has also been criticized for apparently failing to mention livestock or deforestation in an investment stewardship report it released in July outlining its approach to sustainability. (Its more recently published Investment Stewardship Annual Report does discuss efforts to address deforestation, however, as well as tallying the firm’s votes against directors at companies where it’s a shareholder for not doing enough on climate and environmental issues.)
Whichever way you look at it, the firm still has work to do to in order to convince some that it’s now firmly on the sustainability path.
Heading up BlackRock’s renamed BGF Nutrition Fund is London-based David Huggins, vice president and nutrition portfolio manager, active equities, at BlackRock.
Huggins is appearing at this week’s virtual Future Food Tech Summit, where he’ll be joining a panel with Tyson Ventures managing director Erin VanLanduit, Cultivian Sandbox managing director Nick Rosa, Peakbridge Partners managing director Nadav Berger, and TechCrunch editor Jonathan Shieber to discuss agrifoodtech investment in the midst of Covid-19. You can still sign up to attend the fully online event here.
In the meantime, AFN caught up with Huggins for a Q&A before he takes the virtual stage.
AFN: How has Covid-19 impacted foodtech investment as a whole in 2020?
David Huggins: The structural trends regarding foodtech investment have not changed as a result of Covid-19. What we have witnessed is an acceleration in the trends which were already in place.
Risk appetite has broadly returned to pre-pandemic levels. There are pockets of extreme exuberance in certain areas which offer very high growth and have captured the retail investor’s imagination with a great story.
Which agrifood-related technologies have experienced an acceleration of adoption, and have potentially become more lucrative investment opportunities?
Technologies that offer consumers excellent convenience are seeing an acceleration as a result of the pandemic. Anything related to food delivery — such as takeout, meal kits, online grocery — is seeing a continued surge in demand. This is an extremely attractive setup for companies providing these kinds of tech-enabled services: customer acquisition costs have fallen, order rates are rising, and so growth projections are being truncated. Hence, for many of these well-operated foodtech companies, their outlooks are looking even better.
Additionally, through the food chain, there are some other, less obvious businesses benefiting from this. Foodtech companies providing solutions which reduce labor intensity in traditionally labor-intensive food manufacturing, for example, are seeing their services in greater demand.
Which technologies and business models have been adversely affected? And can they recover?
Covid-19 is forcing consumers away from experience-led spending. This headwind has been most relevant for companies providing restaurant tech solutions, like software or automation. With high levels of restaurant closures, demand for their services is muted. Of course, this demand will come back. But it could take several years, and so foodtech companies focused on this niche will need to evolve or perish.
What past experiences can we draw on to predict the impact this crisis will have long-term on capital allocation and growth in the sector?
Broadly, we know that consumer behavior moves slowly. That’s why even great technological solutions can take many years to be adopted. Covid-19 has forced consumer behavior towards online, greater convenience, and greater health and wellbeing. I believe consumer behavior is not going to mean-revert when the Covid-19 effects wane, because of the realities of consumer behaviour. So capital needs to be allocated to lean into these accelerating trends, because it’s fast becoming the ‘new normal.’ Don’t presume we will see a return to the old normal. History tells us it tends not to play out this way.
Do you expect any long-term changes in M&A going forward as a result of the Covid-19 crisis?
Only to the extent that incumbent companies who have not prioritised online capabilities — for example, some in food retail — may now seek to resolve their sluggishness with M&A.
What is BlackRock’s approach to investing in food and agriculture tech startups? Does the firm focus on particular verticals or technologies in these fields, and why?
BlackRock’s current focus on this space is growth capital and onwards. In particular for the BGF Nutrition Fund, we seek companies in the agriculture and food tech space with strong technological differentiators which bring a sustainable moat that can be scaled. We are highly aware of the incumbent players across the food chain and their relative strengths and weaknesses. Hence, we tend to have a fairly good understanding of where an upstart with a technological advantage has a strong prospect for disruption or not. For example, we have often avoided the agtech space as the barriers to entry are extremely high. The incumbent companies have thoroughly tied-up the agriculture supply chain, and the new offerings from tech-led startups are often insufficient to really move the needle for a grower’s [return on investment]. Elsewhere, the foodtech space is broader, is less tied-up by the incumbents, and so we think there could be more white space there.
Why did BlackRock reposition and rebrand its BGF World Agriculture Fund?
BGF World Agriculture’s mandate was to invest in companies supplying the agriculture supply chain, in areas like fertilisers, seeds, chemicals, equipment, and commodity processing. These are typically low-growth, low-margin, commodity-exposed, and significantly less interesting from an investment perspective, compared with the rest of the food chain stretching right down to the consumer.
We repositioned and renamed the fund the BGF Nutrition Fund. We look for, and invest in, the leading companies who are pioneering change in our global food chain, whether it’s innovative online grocery delivery solutions, microbial fermentation technology, or AI-led agricultural chemical spraying technologies. Our reach is broad and offers us the opportunity to only select the most interesting and viable prospects.
How many holdings are in the fund, how many investments does it target each year, and what are the typical ticket sizes?
The BGF Nutrition Fund is an open-ended fund that invests only in public equity securities. It’s a little different to the more usual closed-ended, private, and venture-focused funds. We aim to hold 30 to 50 positions, and a typical investment can range from $1.2 million to $6 million.
What opportunities does BlackRock see in Asia Pacific — and particularly, China — in terms of agrifood? How is the firm’s strategy in Asia different from elsewhere?
In China, we like tech exposed to animal health, as protein production is growing strongly in that geography following the devastating effect of African swine fever in 2018 to 2019. On farm, we think the agtech opportunity in China is quite challenging because farm sizes are small and not very technologically focused. However, closer to the consumer and the food delivery opportunity — which we like globally, especially in emerging markets — is still very attractive. The companies that have consolidated and achieved scale are now capitalizing on their advantaged positions, which is a few years ahead of most other larger food delivery opportunities.
What did Larry Fink’s climate change open letter to CEOs tell us about the future direction of BlackRock in the food, ag, and sustainability spaces?
Larry Fink’s January 2020 letter highlighted the firm’s investment conviction that sustainable investment options have the potential to offer clients better outcomes. Hence BlackRock committed to making sustainability integral to the way it manages risk, constructs portfolios, and designs products. The BGF Nutrition Fund is one of BlackRock’s sustainable thematic funds, and so is already helping to drive changes towards a more sustainable food chain. We are mandated to invest a minimum of 70% of the Fund’s assets in companies which are aligned with the United Nations’ Sustainable Development Goals. This ensures that capital is allocated towards companies who are leading the change and helping consumers and growers become sustainable.
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