1

Portfolio Construction Using Alternative Strategy Allocations in Farmland and Venture Capital

Stephen Johnston Barclay Laughland amp Karim Kadry

Copyright 2017

All rights reserved Readers may make verbatim copies of this document for non-commercial purposes by any means provided that this copyright notice appears on all such copies

2

ABSTRACT A review of the 15-year period from 2000 to 2014 revealed that the addition of a venture capital

allocation to a pure farmland portfolio would have improved the financial performance

Combining core farmland investments with venture capital investments therefore warrants

further investigation to improve portfolio characteristics and to generate synergistic benefits

between direct land holdings and technology investments linked to the sector

KEYWORDS Farmland venture capital efficient investment investment portfolio portfolio performance pension plan institutional investment commercial real estate INTRODUCTION In the current zero interest rate policy ldquoZIRPrdquo environment institutional investors are increasingly looking to less traditional asset classes to generate returns A group of asset classes that have been the beneficiary of this push into alternatives in the last decade is farmland private equity and private debt We believe this is warranted as our research supports the conclusion that a blended portfolio of these investments materially improves portfolio performance The following is a survey of abstracts from relevant research papers in the area

Robert Harris Tim Jenkinson and Steven Kaplan (2015) Abstract The merits of investing in private versus public equity have generated considerable debate often fueled by concerns about data quality In this paper we use cash flow data derived from the holdings of almost 300 institutional investors to study over 1800 North American buyout and venture capital funds Average buyout fund returns for all vintage years but one before 2006 have exceeded those from public markets averaging about 3 to 4 annually Post-2005 vintage year returns have been roughly equal to those of public markets We find similar performance results for a sample of almost 300 European buyout funds Venture capital performance has varied substantially over time North American venture funds from the 1990s substantially outperformed public equities those from the early 2000s have underperformed and recent vintage years have seen a modest rebound The variation in venture performance is significantly linked to capital flows performance is lower for funds started when there are large aggregate inflows of capital to the sector We also examine the variation in performance of funds started in the same year We find marked differences between venture and buyout leading to a much more pronounced impact of accessing high performing funds in venture investing Lins Kowalski and Hoffman (1992) Abstract Farmland equates to approximately 5 of the market capital of assets in the United States but is a de minimis allocation in institutional portfolios The financial performance of US portfolios that included US stocks bonds and commercial real estate could be improved by adding US farmland Shiha and Chavas (1995) Abstract ldquoIn this paper we present and test a segmented capital market equilibrium We extend the traditional CAPM by explicitly considering barriers to the flow of external equity capital into farm real estate markets The empirical results provide a plausible explanation as to why the traditional arbitrage-based pricing models fail to explain equity pricing in farmland marketsrdquo Lence and Miller (1999) Abstract ldquoThe present study investigates whether the farmland ldquoconstant-discount-rate present-value-model (CDR-PVM) puzzlerdquo is due to transaction costs The theoretical implications of transaction costs for the CDR-PVM of farmland are

3

discussed and two bootstrap tests of such implications are introduced and applied to Iowa farmland prices and rents Empirical results regarding the validity of the CDR-PVM in the presence of typical transaction costs are ambiguous Econometric tests indicate that the CDR-PVM is consistent with typical transaction costs assuming a one-period holding horizon but not when an infinite-holding horizon is hypothesizedrdquo Painter (2002) Abstract ldquoFarmland has been a good investment over the past 30 years as part of an internationally diversified medium-risk portfolio For average or medium levels of risk farmland can enhance the financial performance of an investment portfolio Investors who choose to maintain a low-risk portfolio will not include farmland and similarly the gains at the high-risk level are also very minimal The financial gains from farmland are a result of its negatively correlated returns with other equity markets When added to an equity portfolio the risk is reduced while maintaining the same rate of return on investment This is especially true of the medium-risk portfolios Farmland investment has associated problems including illiquidity poor marketability and asset lumpiness A potential solution to these problems is to allow the organization of a Saskatchewan (or Canadian) farmland mutual fundrdquo Painter (2010) Abstract ldquoThis study shows that for the period 1990-2007 international portfolio investment performance was significantly improved with the addition of Canadian farmland Farmland in Canada is considered relatively low risk enters the efficient portfolios at low risk levels and adds the most financial improvement to low and medium risk portfolios Compared with T-bills and long bonds farmland has higher risk and yield but lower risk than stocks Compared with stocks farmland has income yields and risk that are similar to or better than dividend yields and risk on stocks while farmland has capital gain yields and risk that are usually lower on average than stocks The low and negative correlation of farmland yields with stocks and bonds make it a good candidate for portfolio diversification benefitsrdquo Painter (2015) Abstract In recent years as North American farmland prices have continued to rise a number of North American public farmland investment trusts have been formed to offer investors a liquid and marketable farmland investment vehicle How risky are these farmland REITs This paper compares the investment risk with other popular investment options such as bonds stocks gold oil and real estate using several well-known and accepted methods of risk analysis including overall yield variance CAPM Value at Risk (VAR) and Drawdown North American Farmland REIT has less risk than gold oil REITs and stock markets Harris (2013) Private Equity Performance What Do We Know Abstract We study the performance of nearly 1400 US buyout and venture capital funds using a new dataset from Burgiss We find better buyout fund performance than has previously been documented ndash performance consistently has exceeded that of public markets Outperformance versus the SampP 500 averages 20 to 27 over a fundrsquos life and more than 3 annually Venture capital funds outperformed public equities in the 1990s but underperformed in the 2000s Our conclusions are robust to various indices and risk controls Performance in Cambridge Associates and Preqin is qualitatively similar to that in Burgiss but is lower in Thomson Venture Economics Koch (2014) The risk and return of venture capital - Historical return alpha beta and individual performance drivers (1983-2009) Abstract We analyse the returns and the risk profile of venture capital based on a sample of 1953 funds raised between 1983

4

and 2009 In a historical perspective we first show that the strong returns during the dotcom era are followed by a decrease and a convergence of returns However we find strong evidence of outperformance compared to public markets with a PME of 126 (vs SampP500) and 108 (vs Nasdaq) In a second time and in order to assess the risk profile and the risk-adjusted returns of venture capital we focus on the beta and alpha of this asset class Beta stands between 10 and 18 and the quarterly CAPM alpha between 03-51 revealing a clear positive risk-adjusted performance

DISCUSSION OF RESULTS This paper analyzes the efficient frontier effects of a blended pool of holdings of farmland and venture capital over multiple time series In summary the farmland allocation has a minimum risk - maximum Sharpe Ratio percent range between approximately 78 to 87 for a 15 year horizon From the period data we generated efficient frontiers for a blended portfolio of farmland and venture capital

ldquoThe efficient frontier (or portfolio frontier) is a concept in modern portfolio theory introduced by Harry Markowitz in 1952 It refers to investment portfolios which occupy the efficient parts of the risk-return spectrum Formally it is the set of portfolios which satisfy the condition that no other portfolio exists with a higher expected return but with the same standard deviation of return A combination of assets ie a portfolio is referred to as efficient if it has the best possible expected level of return for its level of risk (which is represented by the standard deviation of the portfolios return) Here every possible combination of risky assets can be plotted in riskndashexpected return space and the collection of all such possible portfolios defines a region in this space In the absence of the opportunity to hold a risk-free asset this region is the opportunity set (the feasible set) The positively sloped (upward-sloped) top boundary of this region is a portion of a parabola and is called the efficient frontier

5

If a risk-free asset is also available the opportunity set is larger and its upper boundary the efficient frontier is a straight-line segment emanating from the vertical axis at the value of the risk-free assets return and tangent to the risky-assets-only opportunity set All portfolios between the risk-free asset and the tangency portfolio are portfolios composed of risk-free assets and the tangency portfolio while all portfolios on the linear frontier above and to the right of the tangency portfolio are generated by borrowing at the risk-free rate and investing the proceeds into the tangency portfoliordquo Source Wikipedia

The time series utilized are 5 10 and 15 years with a view to exposing potential shifts in riskreturn profiles over time

6

SOURCE DATA AND ANALYSIS

Annual change

Canada BC AB SK MB ON QC NB NS PEI NL CPI Oil Natgas Gold GDP Residential Bond SampP VC

1985 -88 -137 -83 -103 -73 -94 -10 10 -43 -114 00 40 34 -56 62 28 00 110 263 117

1986 -69 -66 -82 -83 -49 -48 14 -21 17 -79 00 41 -328 -227 195 33 53 97 147 88

1987 -102 -113 -74 -153 -68 -39 02 06 21 -75 00 44 -122 -139 245 143 125 88 21 145

1988 -73 -13 -82 -106 -113 114 10 -01 26 10 00 39 -28 12 -157 176 89 100 121 143

1989 49 38 57 04 61 238 43 18 131 64 00 51 200 00 -22 114 163 100 274 171

1990 -27 30 -11 -69 35 08 41 59 13 00 00 48 -48 12 -37 50 88 95 -25 241

1991 -54 36 -46 -91 -28 11 27 38 -13 00 61 56 -150 -41 -86 29 -97 95 212 240

1992 -21 75 -32 -38 24 06 12 00 00 52 -20 14 00 61 -57 -30 -04 84 53 282

1993 20 147 19 16 26 10 29 00 00 00 -20 19 -324 172 176 -25 07 80 98 304

1994 85 103 101 95 51 34 60 36 00 213 00 01 261 -93 -22 02 14 65 -25 343

1995 100 136 96 119 56 69 98 241 22 85 00 22 69 -162 10 45 -04 90 353 566

1996 113 98 95 110 105 125 237 163 40 00 00 15 290 400 -47 41 -23 70 236 606

1997 80 105 78 55 117 123 105 73 69 58 26 17 -350 69 -222 38 -09 60 247 553

1998 27 -53 51 05 34 47 92 67 08 35 17 10 -308 -155 06 -32 18 55 306 168

1999 02 04 57 -48 07 21 129 154 57 104 23 18 1056 117 05 70 09 50 89 -33

2000 15 44 43 -22 06 85 116 89 25 27 36 27 81 680 -61 98 09 62 -20 -23

2001 14 09 42 -15 03 48 100 10 21 08 23 25 -300 87 14 -08 35 53 -173 04

2002 53 46 64 39 64 63 82 12 00 08 00 22 500 -263 240 30 34 54 -221 06

2003 38 46 42 31 32 72 33 48 24 15 00 28 24 654 217 177 49 50 285 00

2004 46 94 90 19 37 65 31 26 00 00 38 18 302 119 44 147 47 47 44 28

2005 31 172 61 13 18 57 04 -03 04 00 30 22 357 342 178 143 45 47 84 33

2006 47 193 89 21 58 38 15 29 27 00 58 20 -26 -128 239 125 71 40 123 48

2007 116 187 174 110 91 39 48 -14 31 -14 33 22 514 -22 316 114 107 41 -42 152

2008 117 54 91 149 107 66 117 60 97 -24 40 23 -536 275 40 57 48 40 -401 110

2009 66 -07 48 69 117 62 57 82 57 -14 28 03 731 -540 250 -115 -11 27 300 140

2010 52 -05 44 57 47 68 32 24 37 32 07 18 133 221 306 177 12 34 197 218

2011 148 02 87 229 44 143 89 13 62 15 00 29 49 -118 78 109 23 30 20 140

2012 195 01 133 197 256 301 274 00 98 90 00 15 -84 -327 87 20 22 20 142 140

2013 221 30 129 285 256 159 247 72 19 44 00 09 51 402 -276 10 22 17 234 185

2014 143 42 88 187 122 124 157 80 70 93 00 20 -456 172 -04 -27 11 27 111 43

1985-2014

average 45 43 46 36 48 73 81 48 32 21 13 25 53 51 57 58 32 61 102 172

St dev 80 80 68 105 81 96 85 63 40 61 21 14 352 270 152 73 49 27 170 168

sharpe ratio (RF=3) 019 017 023 006 022 045 060 029 004 (015) (084) (040) 007 008 018 038 004 114 042 085

Kurtosis (017) 012 (018) (010) 175 052 062 405 085 275 (002) (001) 114 063 (047) (041) 181 (115) 141 144

15-yr 2000-2014

average 87 61 82 91 84 143 143 45 57 19 20 20 89 104 111 70 35 39 46 82

St dev 66 69 39 96 79 87 101 37 27 35 20 07 356 347 161 84 29 13 195 77

sharpe ratio (RF=3) 086 044 131 064 068 130 112 041 100 (033) (054) (140) 017 021 051 048 017 070 008 067

Kurtosis (043) (004) 063 (067) 142 234 (199) (276) 020 105 (112) 163 (031) (039) 084 (010) 178 (086) 053 (132)

10-yr 2005-2014

average 114 67 94 132 112 143 143 45 57 22 20 18 73 28 121 61 35 32 77 121

St dev 65 83 41 92 83 87 101 37 27 42 21 08 394 308 179 90 34 10 195 62

sharpe ratio (RF=3) 129 044 158 110 098 130 112 041 100 (019) (050) (158) 011 (001) 051 035 014 024 024 146

Kurtosis (102) (129) 009 (116) 013 234 (199) (276) 020 (053) (092) 098 (028) (057) 165 001 106 (102) 406 (095)

5-yr 2010-2014

average 152 14 96 191 145 159 160 38 57 55 01 18 -61 70 38 58 18 26 141 145

St dev 65 21 36 84 106 86 102 36 30 35 03 07 234 290 210 83 06 07 83 66

sharpe ratio (RF=3) 188 (077) 182 191 108 149 127 022 089 071 (914) (160) (039) 014 004 033 (194) (063) 134 175

Kurtosis 100 (215) (059) 206 (305) 265 (211) (280) (063) (266) 500 123 285 (113) 160 (106) (325) (193) (001) 126

7

1 Efficient Frontiers for the 5-Yr period from 2010 to 2014

Min Risk Max Sharpe

Mean 0144326 0144327 0144328 0144328 0144329 0144329 0144330 0144329

St Dev 0033607 0033607 0033607 0033608 0033608 0033608 0033608 0033608

Sharpe 3401818 3401841 3401853 3401860 3401866 3401868 3401867 3401868

F 055 055 055 055 055 055 055 055

V 045 045 045 045 045 045 045 045

8

2 Efficient Frontiers for the 10-Yr period from 2005 to 2014

Min Risk Max Sharpe

Mean 011663 011667 011672 011677 011682 011687 011692 011697

St Dev 004651 004651 004652 004653 004654 004655 004657 004660

Sharpe 186260 186356 186438 186504 186556 186593 186616 186624

F 0541 0535 0528 0522 0516 0510 0504 0497

V 0459 0465 0472 0478 0484 0490 0496 0503

9

3 Efficient Frontiers for the 15-Yr period from 2000 to 2014

10

CONCLUSIONS A holding of a blended portfolio of farmland and venture capital has been a good investment over multiple time periods both short and long term The introduction of up to approximately 13 venture capital investments into a pure farmland portfolio clearly enhanced financial performance Combining core farmland investments with venture capital investments therefore warrants further investigation to improve portfolio characteristics and to generate synergistic benefits between direct land holdings and technology investments linked to the sector

11

NOTES The sources used to derive the data series in this paper Farmland - Farm Credit Canada Venture Capital - httpswwwquoracomWhat-is-the-average-IRR-achieved-by-venture-capital-funds

1 Robert Harris Tim Jenkinson and Steven Kaplan Journal of Investment Management How Do Private Equity Investments Perform Compared to Public Equity 2015 Journal of Investment Management

2 Lins D A Kowalski and C Hoffman (1992) Institutional Investment Diversification Foreign Stocks vs US Farmland In Proceedings of Regional Research Committee NC- 161 Department of Agricultural Economics Kansas State University

3 Shiha Amr N and Jean-Paul Chavas (1995) ldquoCapital Market Segmentation and US Farm Real Estate Pricingrdquo American Journal of Agricultural Economics 77 May 397- 407

4 Lence Sergio H and Douglas J Miller (1999) ldquoTransaction Costs and the Present Value Model of Farmland Iowa 1900-1994rdquo American Journal of Agricultural Economics 81 May 257-272

5 Marvin J Painter (2002) ldquoEfficient Investment in Saskatchewan Farmlandrdquo 13th International Farm Management Congress Wageningen The Netherlands

6 Marvin J Painter (2010) ldquoThe Portfolio Diversification Impact of a Farmland Real Estate Investment Trustrdquo International Business amp Economics Research Journal ndash May 2010 Volume 9 Number 5

7 Marvin J Painter (2015) Assessing the Required Risk Premium for North American Farmland Investment Journal of ASFMRA pp 15-33

8 Robert S Harris Tim Jenkinson and Steven N Kaplan Journal of Finance 2013 9 Steacutephane Koch (2014) ldquoThe risk and return of venture capital Historical return alpha beta and individual performance drivers

(1983-2009)rdquo 10 Markowitz H M (1959) Portfolio Selection Efficient Diversification of Investment New York John Wiley and Sons

AUTHOR BIOGRAPHIES Stephen Johnston - Stephen is a co-founder of Capita Funds and Agcapita Farmland Fund Stephen earned a BSc (1987) and a LLB (1990) from the University of Alberta and a MBA (1994) from the London Business School Stephen is the author of ldquoCantillonrsquos Curserdquo an Austrian economic analysis of a number of key trends and a co-author of ldquoEquicapitarsquos Little Book of What Nextrdquo a detailed analysis of the SME valuation and sale process Barclay Laughland - Barclay has over 15 years experience in private and public corporate restructuring mergers amp acquisition transactions and debt equity financings Barclay received his BComm (1991) and a JD (1994) from the University of Saskatchewan

2

ABSTRACT A review of the 15-year period from 2000 to 2014 revealed that the addition of a venture capital

allocation to a pure farmland portfolio would have improved the financial performance

Combining core farmland investments with venture capital investments therefore warrants

further investigation to improve portfolio characteristics and to generate synergistic benefits

between direct land holdings and technology investments linked to the sector

KEYWORDS Farmland venture capital efficient investment investment portfolio portfolio performance pension plan institutional investment commercial real estate INTRODUCTION In the current zero interest rate policy ldquoZIRPrdquo environment institutional investors are increasingly looking to less traditional asset classes to generate returns A group of asset classes that have been the beneficiary of this push into alternatives in the last decade is farmland private equity and private debt We believe this is warranted as our research supports the conclusion that a blended portfolio of these investments materially improves portfolio performance The following is a survey of abstracts from relevant research papers in the area

Robert Harris Tim Jenkinson and Steven Kaplan (2015) Abstract The merits of investing in private versus public equity have generated considerable debate often fueled by concerns about data quality In this paper we use cash flow data derived from the holdings of almost 300 institutional investors to study over 1800 North American buyout and venture capital funds Average buyout fund returns for all vintage years but one before 2006 have exceeded those from public markets averaging about 3 to 4 annually Post-2005 vintage year returns have been roughly equal to those of public markets We find similar performance results for a sample of almost 300 European buyout funds Venture capital performance has varied substantially over time North American venture funds from the 1990s substantially outperformed public equities those from the early 2000s have underperformed and recent vintage years have seen a modest rebound The variation in venture performance is significantly linked to capital flows performance is lower for funds started when there are large aggregate inflows of capital to the sector We also examine the variation in performance of funds started in the same year We find marked differences between venture and buyout leading to a much more pronounced impact of accessing high performing funds in venture investing Lins Kowalski and Hoffman (1992) Abstract Farmland equates to approximately 5 of the market capital of assets in the United States but is a de minimis allocation in institutional portfolios The financial performance of US portfolios that included US stocks bonds and commercial real estate could be improved by adding US farmland Shiha and Chavas (1995) Abstract ldquoIn this paper we present and test a segmented capital market equilibrium We extend the traditional CAPM by explicitly considering barriers to the flow of external equity capital into farm real estate markets The empirical results provide a plausible explanation as to why the traditional arbitrage-based pricing models fail to explain equity pricing in farmland marketsrdquo Lence and Miller (1999) Abstract ldquoThe present study investigates whether the farmland ldquoconstant-discount-rate present-value-model (CDR-PVM) puzzlerdquo is due to transaction costs The theoretical implications of transaction costs for the CDR-PVM of farmland are

3

discussed and two bootstrap tests of such implications are introduced and applied to Iowa farmland prices and rents Empirical results regarding the validity of the CDR-PVM in the presence of typical transaction costs are ambiguous Econometric tests indicate that the CDR-PVM is consistent with typical transaction costs assuming a one-period holding horizon but not when an infinite-holding horizon is hypothesizedrdquo Painter (2002) Abstract ldquoFarmland has been a good investment over the past 30 years as part of an internationally diversified medium-risk portfolio For average or medium levels of risk farmland can enhance the financial performance of an investment portfolio Investors who choose to maintain a low-risk portfolio will not include farmland and similarly the gains at the high-risk level are also very minimal The financial gains from farmland are a result of its negatively correlated returns with other equity markets When added to an equity portfolio the risk is reduced while maintaining the same rate of return on investment This is especially true of the medium-risk portfolios Farmland investment has associated problems including illiquidity poor marketability and asset lumpiness A potential solution to these problems is to allow the organization of a Saskatchewan (or Canadian) farmland mutual fundrdquo Painter (2010) Abstract ldquoThis study shows that for the period 1990-2007 international portfolio investment performance was significantly improved with the addition of Canadian farmland Farmland in Canada is considered relatively low risk enters the efficient portfolios at low risk levels and adds the most financial improvement to low and medium risk portfolios Compared with T-bills and long bonds farmland has higher risk and yield but lower risk than stocks Compared with stocks farmland has income yields and risk that are similar to or better than dividend yields and risk on stocks while farmland has capital gain yields and risk that are usually lower on average than stocks The low and negative correlation of farmland yields with stocks and bonds make it a good candidate for portfolio diversification benefitsrdquo Painter (2015) Abstract In recent years as North American farmland prices have continued to rise a number of North American public farmland investment trusts have been formed to offer investors a liquid and marketable farmland investment vehicle How risky are these farmland REITs This paper compares the investment risk with other popular investment options such as bonds stocks gold oil and real estate using several well-known and accepted methods of risk analysis including overall yield variance CAPM Value at Risk (VAR) and Drawdown North American Farmland REIT has less risk than gold oil REITs and stock markets Harris (2013) Private Equity Performance What Do We Know Abstract We study the performance of nearly 1400 US buyout and venture capital funds using a new dataset from Burgiss We find better buyout fund performance than has previously been documented ndash performance consistently has exceeded that of public markets Outperformance versus the SampP 500 averages 20 to 27 over a fundrsquos life and more than 3 annually Venture capital funds outperformed public equities in the 1990s but underperformed in the 2000s Our conclusions are robust to various indices and risk controls Performance in Cambridge Associates and Preqin is qualitatively similar to that in Burgiss but is lower in Thomson Venture Economics Koch (2014) The risk and return of venture capital - Historical return alpha beta and individual performance drivers (1983-2009) Abstract We analyse the returns and the risk profile of venture capital based on a sample of 1953 funds raised between 1983

4

and 2009 In a historical perspective we first show that the strong returns during the dotcom era are followed by a decrease and a convergence of returns However we find strong evidence of outperformance compared to public markets with a PME of 126 (vs SampP500) and 108 (vs Nasdaq) In a second time and in order to assess the risk profile and the risk-adjusted returns of venture capital we focus on the beta and alpha of this asset class Beta stands between 10 and 18 and the quarterly CAPM alpha between 03-51 revealing a clear positive risk-adjusted performance

DISCUSSION OF RESULTS This paper analyzes the efficient frontier effects of a blended pool of holdings of farmland and venture capital over multiple time series In summary the farmland allocation has a minimum risk - maximum Sharpe Ratio percent range between approximately 78 to 87 for a 15 year horizon From the period data we generated efficient frontiers for a blended portfolio of farmland and venture capital

ldquoThe efficient frontier (or portfolio frontier) is a concept in modern portfolio theory introduced by Harry Markowitz in 1952 It refers to investment portfolios which occupy the efficient parts of the risk-return spectrum Formally it is the set of portfolios which satisfy the condition that no other portfolio exists with a higher expected return but with the same standard deviation of return A combination of assets ie a portfolio is referred to as efficient if it has the best possible expected level of return for its level of risk (which is represented by the standard deviation of the portfolios return) Here every possible combination of risky assets can be plotted in riskndashexpected return space and the collection of all such possible portfolios defines a region in this space In the absence of the opportunity to hold a risk-free asset this region is the opportunity set (the feasible set) The positively sloped (upward-sloped) top boundary of this region is a portion of a parabola and is called the efficient frontier

5

If a risk-free asset is also available the opportunity set is larger and its upper boundary the efficient frontier is a straight-line segment emanating from the vertical axis at the value of the risk-free assets return and tangent to the risky-assets-only opportunity set All portfolios between the risk-free asset and the tangency portfolio are portfolios composed of risk-free assets and the tangency portfolio while all portfolios on the linear frontier above and to the right of the tangency portfolio are generated by borrowing at the risk-free rate and investing the proceeds into the tangency portfoliordquo Source Wikipedia

The time series utilized are 5 10 and 15 years with a view to exposing potential shifts in riskreturn profiles over time

6

SOURCE DATA AND ANALYSIS

Annual change

Canada BC AB SK MB ON QC NB NS PEI NL CPI Oil Natgas Gold GDP Residential Bond SampP VC

1985 -88 -137 -83 -103 -73 -94 -10 10 -43 -114 00 40 34 -56 62 28 00 110 263 117

1986 -69 -66 -82 -83 -49 -48 14 -21 17 -79 00 41 -328 -227 195 33 53 97 147 88

1987 -102 -113 -74 -153 -68 -39 02 06 21 -75 00 44 -122 -139 245 143 125 88 21 145

1988 -73 -13 -82 -106 -113 114 10 -01 26 10 00 39 -28 12 -157 176 89 100 121 143

1989 49 38 57 04 61 238 43 18 131 64 00 51 200 00 -22 114 163 100 274 171

1990 -27 30 -11 -69 35 08 41 59 13 00 00 48 -48 12 -37 50 88 95 -25 241

1991 -54 36 -46 -91 -28 11 27 38 -13 00 61 56 -150 -41 -86 29 -97 95 212 240

1992 -21 75 -32 -38 24 06 12 00 00 52 -20 14 00 61 -57 -30 -04 84 53 282

1993 20 147 19 16 26 10 29 00 00 00 -20 19 -324 172 176 -25 07 80 98 304

1994 85 103 101 95 51 34 60 36 00 213 00 01 261 -93 -22 02 14 65 -25 343

1995 100 136 96 119 56 69 98 241 22 85 00 22 69 -162 10 45 -04 90 353 566

1996 113 98 95 110 105 125 237 163 40 00 00 15 290 400 -47 41 -23 70 236 606

1997 80 105 78 55 117 123 105 73 69 58 26 17 -350 69 -222 38 -09 60 247 553

1998 27 -53 51 05 34 47 92 67 08 35 17 10 -308 -155 06 -32 18 55 306 168

1999 02 04 57 -48 07 21 129 154 57 104 23 18 1056 117 05 70 09 50 89 -33

2000 15 44 43 -22 06 85 116 89 25 27 36 27 81 680 -61 98 09 62 -20 -23

2001 14 09 42 -15 03 48 100 10 21 08 23 25 -300 87 14 -08 35 53 -173 04

2002 53 46 64 39 64 63 82 12 00 08 00 22 500 -263 240 30 34 54 -221 06

2003 38 46 42 31 32 72 33 48 24 15 00 28 24 654 217 177 49 50 285 00

2004 46 94 90 19 37 65 31 26 00 00 38 18 302 119 44 147 47 47 44 28

2005 31 172 61 13 18 57 04 -03 04 00 30 22 357 342 178 143 45 47 84 33

2006 47 193 89 21 58 38 15 29 27 00 58 20 -26 -128 239 125 71 40 123 48

2007 116 187 174 110 91 39 48 -14 31 -14 33 22 514 -22 316 114 107 41 -42 152

2008 117 54 91 149 107 66 117 60 97 -24 40 23 -536 275 40 57 48 40 -401 110

2009 66 -07 48 69 117 62 57 82 57 -14 28 03 731 -540 250 -115 -11 27 300 140

2010 52 -05 44 57 47 68 32 24 37 32 07 18 133 221 306 177 12 34 197 218

2011 148 02 87 229 44 143 89 13 62 15 00 29 49 -118 78 109 23 30 20 140

2012 195 01 133 197 256 301 274 00 98 90 00 15 -84 -327 87 20 22 20 142 140

2013 221 30 129 285 256 159 247 72 19 44 00 09 51 402 -276 10 22 17 234 185

2014 143 42 88 187 122 124 157 80 70 93 00 20 -456 172 -04 -27 11 27 111 43

1985-2014

average 45 43 46 36 48 73 81 48 32 21 13 25 53 51 57 58 32 61 102 172

St dev 80 80 68 105 81 96 85 63 40 61 21 14 352 270 152 73 49 27 170 168

sharpe ratio (RF=3) 019 017 023 006 022 045 060 029 004 (015) (084) (040) 007 008 018 038 004 114 042 085

Kurtosis (017) 012 (018) (010) 175 052 062 405 085 275 (002) (001) 114 063 (047) (041) 181 (115) 141 144

15-yr 2000-2014

average 87 61 82 91 84 143 143 45 57 19 20 20 89 104 111 70 35 39 46 82

St dev 66 69 39 96 79 87 101 37 27 35 20 07 356 347 161 84 29 13 195 77

sharpe ratio (RF=3) 086 044 131 064 068 130 112 041 100 (033) (054) (140) 017 021 051 048 017 070 008 067

Kurtosis (043) (004) 063 (067) 142 234 (199) (276) 020 105 (112) 163 (031) (039) 084 (010) 178 (086) 053 (132)

10-yr 2005-2014

average 114 67 94 132 112 143 143 45 57 22 20 18 73 28 121 61 35 32 77 121

St dev 65 83 41 92 83 87 101 37 27 42 21 08 394 308 179 90 34 10 195 62

sharpe ratio (RF=3) 129 044 158 110 098 130 112 041 100 (019) (050) (158) 011 (001) 051 035 014 024 024 146

Kurtosis (102) (129) 009 (116) 013 234 (199) (276) 020 (053) (092) 098 (028) (057) 165 001 106 (102) 406 (095)

5-yr 2010-2014

average 152 14 96 191 145 159 160 38 57 55 01 18 -61 70 38 58 18 26 141 145

St dev 65 21 36 84 106 86 102 36 30 35 03 07 234 290 210 83 06 07 83 66

sharpe ratio (RF=3) 188 (077) 182 191 108 149 127 022 089 071 (914) (160) (039) 014 004 033 (194) (063) 134 175

Kurtosis 100 (215) (059) 206 (305) 265 (211) (280) (063) (266) 500 123 285 (113) 160 (106) (325) (193) (001) 126

7

1 Efficient Frontiers for the 5-Yr period from 2010 to 2014

Min Risk Max Sharpe

Mean 0144326 0144327 0144328 0144328 0144329 0144329 0144330 0144329

St Dev 0033607 0033607 0033607 0033608 0033608 0033608 0033608 0033608

Sharpe 3401818 3401841 3401853 3401860 3401866 3401868 3401867 3401868

F 055 055 055 055 055 055 055 055

V 045 045 045 045 045 045 045 045

8

2 Efficient Frontiers for the 10-Yr period from 2005 to 2014

Min Risk Max Sharpe

Mean 011663 011667 011672 011677 011682 011687 011692 011697

St Dev 004651 004651 004652 004653 004654 004655 004657 004660

Sharpe 186260 186356 186438 186504 186556 186593 186616 186624

F 0541 0535 0528 0522 0516 0510 0504 0497

V 0459 0465 0472 0478 0484 0490 0496 0503

9

3 Efficient Frontiers for the 15-Yr period from 2000 to 2014

10

CONCLUSIONS A holding of a blended portfolio of farmland and venture capital has been a good investment over multiple time periods both short and long term The introduction of up to approximately 13 venture capital investments into a pure farmland portfolio clearly enhanced financial performance Combining core farmland investments with venture capital investments therefore warrants further investigation to improve portfolio characteristics and to generate synergistic benefits between direct land holdings and technology investments linked to the sector

11

NOTES The sources used to derive the data series in this paper Farmland - Farm Credit Canada Venture Capital - httpswwwquoracomWhat-is-the-average-IRR-achieved-by-venture-capital-funds

1 Robert Harris Tim Jenkinson and Steven Kaplan Journal of Investment Management How Do Private Equity Investments Perform Compared to Public Equity 2015 Journal of Investment Management

2 Lins D A Kowalski and C Hoffman (1992) Institutional Investment Diversification Foreign Stocks vs US Farmland In Proceedings of Regional Research Committee NC- 161 Department of Agricultural Economics Kansas State University

3 Shiha Amr N and Jean-Paul Chavas (1995) ldquoCapital Market Segmentation and US Farm Real Estate Pricingrdquo American Journal of Agricultural Economics 77 May 397- 407

4 Lence Sergio H and Douglas J Miller (1999) ldquoTransaction Costs and the Present Value Model of Farmland Iowa 1900-1994rdquo American Journal of Agricultural Economics 81 May 257-272

5 Marvin J Painter (2002) ldquoEfficient Investment in Saskatchewan Farmlandrdquo 13th International Farm Management Congress Wageningen The Netherlands

6 Marvin J Painter (2010) ldquoThe Portfolio Diversification Impact of a Farmland Real Estate Investment Trustrdquo International Business amp Economics Research Journal ndash May 2010 Volume 9 Number 5

7 Marvin J Painter (2015) Assessing the Required Risk Premium for North American Farmland Investment Journal of ASFMRA pp 15-33

8 Robert S Harris Tim Jenkinson and Steven N Kaplan Journal of Finance 2013 9 Steacutephane Koch (2014) ldquoThe risk and return of venture capital Historical return alpha beta and individual performance drivers

(1983-2009)rdquo 10 Markowitz H M (1959) Portfolio Selection Efficient Diversification of Investment New York John Wiley and Sons

AUTHOR BIOGRAPHIES Stephen Johnston - Stephen is a co-founder of Capita Funds and Agcapita Farmland Fund Stephen earned a BSc (1987) and a LLB (1990) from the University of Alberta and a MBA (1994) from the London Business School Stephen is the author of ldquoCantillonrsquos Curserdquo an Austrian economic analysis of a number of key trends and a co-author of ldquoEquicapitarsquos Little Book of What Nextrdquo a detailed analysis of the SME valuation and sale process Barclay Laughland - Barclay has over 15 years experience in private and public corporate restructuring mergers amp acquisition transactions and debt equity financings Barclay received his BComm (1991) and a JD (1994) from the University of Saskatchewan

3

discussed and two bootstrap tests of such implications are introduced and applied to Iowa farmland prices and rents Empirical results regarding the validity of the CDR-PVM in the presence of typical transaction costs are ambiguous Econometric tests indicate that the CDR-PVM is consistent with typical transaction costs assuming a one-period holding horizon but not when an infinite-holding horizon is hypothesizedrdquo Painter (2002) Abstract ldquoFarmland has been a good investment over the past 30 years as part of an internationally diversified medium-risk portfolio For average or medium levels of risk farmland can enhance the financial performance of an investment portfolio Investors who choose to maintain a low-risk portfolio will not include farmland and similarly the gains at the high-risk level are also very minimal The financial gains from farmland are a result of its negatively correlated returns with other equity markets When added to an equity portfolio the risk is reduced while maintaining the same rate of return on investment This is especially true of the medium-risk portfolios Farmland investment has associated problems including illiquidity poor marketability and asset lumpiness A potential solution to these problems is to allow the organization of a Saskatchewan (or Canadian) farmland mutual fundrdquo Painter (2010) Abstract ldquoThis study shows that for the period 1990-2007 international portfolio investment performance was significantly improved with the addition of Canadian farmland Farmland in Canada is considered relatively low risk enters the efficient portfolios at low risk levels and adds the most financial improvement to low and medium risk portfolios Compared with T-bills and long bonds farmland has higher risk and yield but lower risk than stocks Compared with stocks farmland has income yields and risk that are similar to or better than dividend yields and risk on stocks while farmland has capital gain yields and risk that are usually lower on average than stocks The low and negative correlation of farmland yields with stocks and bonds make it a good candidate for portfolio diversification benefitsrdquo Painter (2015) Abstract In recent years as North American farmland prices have continued to rise a number of North American public farmland investment trusts have been formed to offer investors a liquid and marketable farmland investment vehicle How risky are these farmland REITs This paper compares the investment risk with other popular investment options such as bonds stocks gold oil and real estate using several well-known and accepted methods of risk analysis including overall yield variance CAPM Value at Risk (VAR) and Drawdown North American Farmland REIT has less risk than gold oil REITs and stock markets Harris (2013) Private Equity Performance What Do We Know Abstract We study the performance of nearly 1400 US buyout and venture capital funds using a new dataset from Burgiss We find better buyout fund performance than has previously been documented ndash performance consistently has exceeded that of public markets Outperformance versus the SampP 500 averages 20 to 27 over a fundrsquos life and more than 3 annually Venture capital funds outperformed public equities in the 1990s but underperformed in the 2000s Our conclusions are robust to various indices and risk controls Performance in Cambridge Associates and Preqin is qualitatively similar to that in Burgiss but is lower in Thomson Venture Economics Koch (2014) The risk and return of venture capital - Historical return alpha beta and individual performance drivers (1983-2009) Abstract We analyse the returns and the risk profile of venture capital based on a sample of 1953 funds raised between 1983

4

and 2009 In a historical perspective we first show that the strong returns during the dotcom era are followed by a decrease and a convergence of returns However we find strong evidence of outperformance compared to public markets with a PME of 126 (vs SampP500) and 108 (vs Nasdaq) In a second time and in order to assess the risk profile and the risk-adjusted returns of venture capital we focus on the beta and alpha of this asset class Beta stands between 10 and 18 and the quarterly CAPM alpha between 03-51 revealing a clear positive risk-adjusted performance

DISCUSSION OF RESULTS This paper analyzes the efficient frontier effects of a blended pool of holdings of farmland and venture capital over multiple time series In summary the farmland allocation has a minimum risk - maximum Sharpe Ratio percent range between approximately 78 to 87 for a 15 year horizon From the period data we generated efficient frontiers for a blended portfolio of farmland and venture capital

ldquoThe efficient frontier (or portfolio frontier) is a concept in modern portfolio theory introduced by Harry Markowitz in 1952 It refers to investment portfolios which occupy the efficient parts of the risk-return spectrum Formally it is the set of portfolios which satisfy the condition that no other portfolio exists with a higher expected return but with the same standard deviation of return A combination of assets ie a portfolio is referred to as efficient if it has the best possible expected level of return for its level of risk (which is represented by the standard deviation of the portfolios return) Here every possible combination of risky assets can be plotted in riskndashexpected return space and the collection of all such possible portfolios defines a region in this space In the absence of the opportunity to hold a risk-free asset this region is the opportunity set (the feasible set) The positively sloped (upward-sloped) top boundary of this region is a portion of a parabola and is called the efficient frontier

5

If a risk-free asset is also available the opportunity set is larger and its upper boundary the efficient frontier is a straight-line segment emanating from the vertical axis at the value of the risk-free assets return and tangent to the risky-assets-only opportunity set All portfolios between the risk-free asset and the tangency portfolio are portfolios composed of risk-free assets and the tangency portfolio while all portfolios on the linear frontier above and to the right of the tangency portfolio are generated by borrowing at the risk-free rate and investing the proceeds into the tangency portfoliordquo Source Wikipedia

The time series utilized are 5 10 and 15 years with a view to exposing potential shifts in riskreturn profiles over time

6

SOURCE DATA AND ANALYSIS

Annual change

Canada BC AB SK MB ON QC NB NS PEI NL CPI Oil Natgas Gold GDP Residential Bond SampP VC

1985 -88 -137 -83 -103 -73 -94 -10 10 -43 -114 00 40 34 -56 62 28 00 110 263 117

1986 -69 -66 -82 -83 -49 -48 14 -21 17 -79 00 41 -328 -227 195 33 53 97 147 88

1987 -102 -113 -74 -153 -68 -39 02 06 21 -75 00 44 -122 -139 245 143 125 88 21 145

1988 -73 -13 -82 -106 -113 114 10 -01 26 10 00 39 -28 12 -157 176 89 100 121 143

1989 49 38 57 04 61 238 43 18 131 64 00 51 200 00 -22 114 163 100 274 171

1990 -27 30 -11 -69 35 08 41 59 13 00 00 48 -48 12 -37 50 88 95 -25 241

1991 -54 36 -46 -91 -28 11 27 38 -13 00 61 56 -150 -41 -86 29 -97 95 212 240

1992 -21 75 -32 -38 24 06 12 00 00 52 -20 14 00 61 -57 -30 -04 84 53 282

1993 20 147 19 16 26 10 29 00 00 00 -20 19 -324 172 176 -25 07 80 98 304

1994 85 103 101 95 51 34 60 36 00 213 00 01 261 -93 -22 02 14 65 -25 343

1995 100 136 96 119 56 69 98 241 22 85 00 22 69 -162 10 45 -04 90 353 566

1996 113 98 95 110 105 125 237 163 40 00 00 15 290 400 -47 41 -23 70 236 606

1997 80 105 78 55 117 123 105 73 69 58 26 17 -350 69 -222 38 -09 60 247 553

1998 27 -53 51 05 34 47 92 67 08 35 17 10 -308 -155 06 -32 18 55 306 168

1999 02 04 57 -48 07 21 129 154 57 104 23 18 1056 117 05 70 09 50 89 -33

2000 15 44 43 -22 06 85 116 89 25 27 36 27 81 680 -61 98 09 62 -20 -23

2001 14 09 42 -15 03 48 100 10 21 08 23 25 -300 87 14 -08 35 53 -173 04

2002 53 46 64 39 64 63 82 12 00 08 00 22 500 -263 240 30 34 54 -221 06

2003 38 46 42 31 32 72 33 48 24 15 00 28 24 654 217 177 49 50 285 00

2004 46 94 90 19 37 65 31 26 00 00 38 18 302 119 44 147 47 47 44 28

2005 31 172 61 13 18 57 04 -03 04 00 30 22 357 342 178 143 45 47 84 33

2006 47 193 89 21 58 38 15 29 27 00 58 20 -26 -128 239 125 71 40 123 48

2007 116 187 174 110 91 39 48 -14 31 -14 33 22 514 -22 316 114 107 41 -42 152

2008 117 54 91 149 107 66 117 60 97 -24 40 23 -536 275 40 57 48 40 -401 110

2009 66 -07 48 69 117 62 57 82 57 -14 28 03 731 -540 250 -115 -11 27 300 140

2010 52 -05 44 57 47 68 32 24 37 32 07 18 133 221 306 177 12 34 197 218

2011 148 02 87 229 44 143 89 13 62 15 00 29 49 -118 78 109 23 30 20 140

2012 195 01 133 197 256 301 274 00 98 90 00 15 -84 -327 87 20 22 20 142 140

2013 221 30 129 285 256 159 247 72 19 44 00 09 51 402 -276 10 22 17 234 185

2014 143 42 88 187 122 124 157 80 70 93 00 20 -456 172 -04 -27 11 27 111 43

1985-2014

average 45 43 46 36 48 73 81 48 32 21 13 25 53 51 57 58 32 61 102 172

St dev 80 80 68 105 81 96 85 63 40 61 21 14 352 270 152 73 49 27 170 168

sharpe ratio (RF=3) 019 017 023 006 022 045 060 029 004 (015) (084) (040) 007 008 018 038 004 114 042 085

Kurtosis (017) 012 (018) (010) 175 052 062 405 085 275 (002) (001) 114 063 (047) (041) 181 (115) 141 144

15-yr 2000-2014

average 87 61 82 91 84 143 143 45 57 19 20 20 89 104 111 70 35 39 46 82

St dev 66 69 39 96 79 87 101 37 27 35 20 07 356 347 161 84 29 13 195 77

sharpe ratio (RF=3) 086 044 131 064 068 130 112 041 100 (033) (054) (140) 017 021 051 048 017 070 008 067

Kurtosis (043) (004) 063 (067) 142 234 (199) (276) 020 105 (112) 163 (031) (039) 084 (010) 178 (086) 053 (132)

10-yr 2005-2014

average 114 67 94 132 112 143 143 45 57 22 20 18 73 28 121 61 35 32 77 121

St dev 65 83 41 92 83 87 101 37 27 42 21 08 394 308 179 90 34 10 195 62

sharpe ratio (RF=3) 129 044 158 110 098 130 112 041 100 (019) (050) (158) 011 (001) 051 035 014 024 024 146

Kurtosis (102) (129) 009 (116) 013 234 (199) (276) 020 (053) (092) 098 (028) (057) 165 001 106 (102) 406 (095)

5-yr 2010-2014

average 152 14 96 191 145 159 160 38 57 55 01 18 -61 70 38 58 18 26 141 145

St dev 65 21 36 84 106 86 102 36 30 35 03 07 234 290 210 83 06 07 83 66

sharpe ratio (RF=3) 188 (077) 182 191 108 149 127 022 089 071 (914) (160) (039) 014 004 033 (194) (063) 134 175

Kurtosis 100 (215) (059) 206 (305) 265 (211) (280) (063) (266) 500 123 285 (113) 160 (106) (325) (193) (001) 126

7

1 Efficient Frontiers for the 5-Yr period from 2010 to 2014

Min Risk Max Sharpe

Mean 0144326 0144327 0144328 0144328 0144329 0144329 0144330 0144329

St Dev 0033607 0033607 0033607 0033608 0033608 0033608 0033608 0033608

Sharpe 3401818 3401841 3401853 3401860 3401866 3401868 3401867 3401868

F 055 055 055 055 055 055 055 055

V 045 045 045 045 045 045 045 045

8

2 Efficient Frontiers for the 10-Yr period from 2005 to 2014

Min Risk Max Sharpe

Mean 011663 011667 011672 011677 011682 011687 011692 011697

St Dev 004651 004651 004652 004653 004654 004655 004657 004660

Sharpe 186260 186356 186438 186504 186556 186593 186616 186624

F 0541 0535 0528 0522 0516 0510 0504 0497

V 0459 0465 0472 0478 0484 0490 0496 0503

9

3 Efficient Frontiers for the 15-Yr period from 2000 to 2014

10

CONCLUSIONS A holding of a blended portfolio of farmland and venture capital has been a good investment over multiple time periods both short and long term The introduction of up to approximately 13 venture capital investments into a pure farmland portfolio clearly enhanced financial performance Combining core farmland investments with venture capital investments therefore warrants further investigation to improve portfolio characteristics and to generate synergistic benefits between direct land holdings and technology investments linked to the sector

11

NOTES The sources used to derive the data series in this paper Farmland - Farm Credit Canada Venture Capital - httpswwwquoracomWhat-is-the-average-IRR-achieved-by-venture-capital-funds

1 Robert Harris Tim Jenkinson and Steven Kaplan Journal of Investment Management How Do Private Equity Investments Perform Compared to Public Equity 2015 Journal of Investment Management

2 Lins D A Kowalski and C Hoffman (1992) Institutional Investment Diversification Foreign Stocks vs US Farmland In Proceedings of Regional Research Committee NC- 161 Department of Agricultural Economics Kansas State University

3 Shiha Amr N and Jean-Paul Chavas (1995) ldquoCapital Market Segmentation and US Farm Real Estate Pricingrdquo American Journal of Agricultural Economics 77 May 397- 407

4 Lence Sergio H and Douglas J Miller (1999) ldquoTransaction Costs and the Present Value Model of Farmland Iowa 1900-1994rdquo American Journal of Agricultural Economics 81 May 257-272

5 Marvin J Painter (2002) ldquoEfficient Investment in Saskatchewan Farmlandrdquo 13th International Farm Management Congress Wageningen The Netherlands

6 Marvin J Painter (2010) ldquoThe Portfolio Diversification Impact of a Farmland Real Estate Investment Trustrdquo International Business amp Economics Research Journal ndash May 2010 Volume 9 Number 5

7 Marvin J Painter (2015) Assessing the Required Risk Premium for North American Farmland Investment Journal of ASFMRA pp 15-33

8 Robert S Harris Tim Jenkinson and Steven N Kaplan Journal of Finance 2013 9 Steacutephane Koch (2014) ldquoThe risk and return of venture capital Historical return alpha beta and individual performance drivers

(1983-2009)rdquo 10 Markowitz H M (1959) Portfolio Selection Efficient Diversification of Investment New York John Wiley and Sons

AUTHOR BIOGRAPHIES Stephen Johnston - Stephen is a co-founder of Capita Funds and Agcapita Farmland Fund Stephen earned a BSc (1987) and a LLB (1990) from the University of Alberta and a MBA (1994) from the London Business School Stephen is the author of ldquoCantillonrsquos Curserdquo an Austrian economic analysis of a number of key trends and a co-author of ldquoEquicapitarsquos Little Book of What Nextrdquo a detailed analysis of the SME valuation and sale process Barclay Laughland - Barclay has over 15 years experience in private and public corporate restructuring mergers amp acquisition transactions and debt equity financings Barclay received his BComm (1991) and a JD (1994) from the University of Saskatchewan

4

and 2009 In a historical perspective we first show that the strong returns during the dotcom era are followed by a decrease and a convergence of returns However we find strong evidence of outperformance compared to public markets with a PME of 126 (vs SampP500) and 108 (vs Nasdaq) In a second time and in order to assess the risk profile and the risk-adjusted returns of venture capital we focus on the beta and alpha of this asset class Beta stands between 10 and 18 and the quarterly CAPM alpha between 03-51 revealing a clear positive risk-adjusted performance

DISCUSSION OF RESULTS This paper analyzes the efficient frontier effects of a blended pool of holdings of farmland and venture capital over multiple time series In summary the farmland allocation has a minimum risk - maximum Sharpe Ratio percent range between approximately 78 to 87 for a 15 year horizon From the period data we generated efficient frontiers for a blended portfolio of farmland and venture capital

ldquoThe efficient frontier (or portfolio frontier) is a concept in modern portfolio theory introduced by Harry Markowitz in 1952 It refers to investment portfolios which occupy the efficient parts of the risk-return spectrum Formally it is the set of portfolios which satisfy the condition that no other portfolio exists with a higher expected return but with the same standard deviation of return A combination of assets ie a portfolio is referred to as efficient if it has the best possible expected level of return for its level of risk (which is represented by the standard deviation of the portfolios return) Here every possible combination of risky assets can be plotted in riskndashexpected return space and the collection of all such possible portfolios defines a region in this space In the absence of the opportunity to hold a risk-free asset this region is the opportunity set (the feasible set) The positively sloped (upward-sloped) top boundary of this region is a portion of a parabola and is called the efficient frontier

5

If a risk-free asset is also available the opportunity set is larger and its upper boundary the efficient frontier is a straight-line segment emanating from the vertical axis at the value of the risk-free assets return and tangent to the risky-assets-only opportunity set All portfolios between the risk-free asset and the tangency portfolio are portfolios composed of risk-free assets and the tangency portfolio while all portfolios on the linear frontier above and to the right of the tangency portfolio are generated by borrowing at the risk-free rate and investing the proceeds into the tangency portfoliordquo Source Wikipedia

The time series utilized are 5 10 and 15 years with a view to exposing potential shifts in riskreturn profiles over time

6

SOURCE DATA AND ANALYSIS

Annual change

Canada BC AB SK MB ON QC NB NS PEI NL CPI Oil Natgas Gold GDP Residential Bond SampP VC

1985 -88 -137 -83 -103 -73 -94 -10 10 -43 -114 00 40 34 -56 62 28 00 110 263 117

1986 -69 -66 -82 -83 -49 -48 14 -21 17 -79 00 41 -328 -227 195 33 53 97 147 88

1987 -102 -113 -74 -153 -68 -39 02 06 21 -75 00 44 -122 -139 245 143 125 88 21 145

1988 -73 -13 -82 -106 -113 114 10 -01 26 10 00 39 -28 12 -157 176 89 100 121 143

1989 49 38 57 04 61 238 43 18 131 64 00 51 200 00 -22 114 163 100 274 171

1990 -27 30 -11 -69 35 08 41 59 13 00 00 48 -48 12 -37 50 88 95 -25 241

1991 -54 36 -46 -91 -28 11 27 38 -13 00 61 56 -150 -41 -86 29 -97 95 212 240

1992 -21 75 -32 -38 24 06 12 00 00 52 -20 14 00 61 -57 -30 -04 84 53 282

1993 20 147 19 16 26 10 29 00 00 00 -20 19 -324 172 176 -25 07 80 98 304

1994 85 103 101 95 51 34 60 36 00 213 00 01 261 -93 -22 02 14 65 -25 343

1995 100 136 96 119 56 69 98 241 22 85 00 22 69 -162 10 45 -04 90 353 566

1996 113 98 95 110 105 125 237 163 40 00 00 15 290 400 -47 41 -23 70 236 606

1997 80 105 78 55 117 123 105 73 69 58 26 17 -350 69 -222 38 -09 60 247 553

1998 27 -53 51 05 34 47 92 67 08 35 17 10 -308 -155 06 -32 18 55 306 168

1999 02 04 57 -48 07 21 129 154 57 104 23 18 1056 117 05 70 09 50 89 -33

2000 15 44 43 -22 06 85 116 89 25 27 36 27 81 680 -61 98 09 62 -20 -23

2001 14 09 42 -15 03 48 100 10 21 08 23 25 -300 87 14 -08 35 53 -173 04

2002 53 46 64 39 64 63 82 12 00 08 00 22 500 -263 240 30 34 54 -221 06

2003 38 46 42 31 32 72 33 48 24 15 00 28 24 654 217 177 49 50 285 00

2004 46 94 90 19 37 65 31 26 00 00 38 18 302 119 44 147 47 47 44 28

2005 31 172 61 13 18 57 04 -03 04 00 30 22 357 342 178 143 45 47 84 33

2006 47 193 89 21 58 38 15 29 27 00 58 20 -26 -128 239 125 71 40 123 48

2007 116 187 174 110 91 39 48 -14 31 -14 33 22 514 -22 316 114 107 41 -42 152

2008 117 54 91 149 107 66 117 60 97 -24 40 23 -536 275 40 57 48 40 -401 110

2009 66 -07 48 69 117 62 57 82 57 -14 28 03 731 -540 250 -115 -11 27 300 140

2010 52 -05 44 57 47 68 32 24 37 32 07 18 133 221 306 177 12 34 197 218

2011 148 02 87 229 44 143 89 13 62 15 00 29 49 -118 78 109 23 30 20 140

2012 195 01 133 197 256 301 274 00 98 90 00 15 -84 -327 87 20 22 20 142 140

2013 221 30 129 285 256 159 247 72 19 44 00 09 51 402 -276 10 22 17 234 185

2014 143 42 88 187 122 124 157 80 70 93 00 20 -456 172 -04 -27 11 27 111 43

1985-2014

average 45 43 46 36 48 73 81 48 32 21 13 25 53 51 57 58 32 61 102 172

St dev 80 80 68 105 81 96 85 63 40 61 21 14 352 270 152 73 49 27 170 168

sharpe ratio (RF=3) 019 017 023 006 022 045 060 029 004 (015) (084) (040) 007 008 018 038 004 114 042 085

Kurtosis (017) 012 (018) (010) 175 052 062 405 085 275 (002) (001) 114 063 (047) (041) 181 (115) 141 144

15-yr 2000-2014

average 87 61 82 91 84 143 143 45 57 19 20 20 89 104 111 70 35 39 46 82

St dev 66 69 39 96 79 87 101 37 27 35 20 07 356 347 161 84 29 13 195 77

sharpe ratio (RF=3) 086 044 131 064 068 130 112 041 100 (033) (054) (140) 017 021 051 048 017 070 008 067

Kurtosis (043) (004) 063 (067) 142 234 (199) (276) 020 105 (112) 163 (031) (039) 084 (010) 178 (086) 053 (132)

10-yr 2005-2014

average 114 67 94 132 112 143 143 45 57 22 20 18 73 28 121 61 35 32 77 121

St dev 65 83 41 92 83 87 101 37 27 42 21 08 394 308 179 90 34 10 195 62

sharpe ratio (RF=3) 129 044 158 110 098 130 112 041 100 (019) (050) (158) 011 (001) 051 035 014 024 024 146

Kurtosis (102) (129) 009 (116) 013 234 (199) (276) 020 (053) (092) 098 (028) (057) 165 001 106 (102) 406 (095)

5-yr 2010-2014

average 152 14 96 191 145 159 160 38 57 55 01 18 -61 70 38 58 18 26 141 145

St dev 65 21 36 84 106 86 102 36 30 35 03 07 234 290 210 83 06 07 83 66

sharpe ratio (RF=3) 188 (077) 182 191 108 149 127 022 089 071 (914) (160) (039) 014 004 033 (194) (063) 134 175

Kurtosis 100 (215) (059) 206 (305) 265 (211) (280) (063) (266) 500 123 285 (113) 160 (106) (325) (193) (001) 126

7

1 Efficient Frontiers for the 5-Yr period from 2010 to 2014

Min Risk Max Sharpe

Mean 0144326 0144327 0144328 0144328 0144329 0144329 0144330 0144329

St Dev 0033607 0033607 0033607 0033608 0033608 0033608 0033608 0033608

Sharpe 3401818 3401841 3401853 3401860 3401866 3401868 3401867 3401868

F 055 055 055 055 055 055 055 055

V 045 045 045 045 045 045 045 045

8

2 Efficient Frontiers for the 10-Yr period from 2005 to 2014

Min Risk Max Sharpe

Mean 011663 011667 011672 011677 011682 011687 011692 011697

St Dev 004651 004651 004652 004653 004654 004655 004657 004660

Sharpe 186260 186356 186438 186504 186556 186593 186616 186624

F 0541 0535 0528 0522 0516 0510 0504 0497

V 0459 0465 0472 0478 0484 0490 0496 0503

9

3 Efficient Frontiers for the 15-Yr period from 2000 to 2014

10

CONCLUSIONS A holding of a blended portfolio of farmland and venture capital has been a good investment over multiple time periods both short and long term The introduction of up to approximately 13 venture capital investments into a pure farmland portfolio clearly enhanced financial performance Combining core farmland investments with venture capital investments therefore warrants further investigation to improve portfolio characteristics and to generate synergistic benefits between direct land holdings and technology investments linked to the sector

11

NOTES The sources used to derive the data series in this paper Farmland - Farm Credit Canada Venture Capital - httpswwwquoracomWhat-is-the-average-IRR-achieved-by-venture-capital-funds

1 Robert Harris Tim Jenkinson and Steven Kaplan Journal of Investment Management How Do Private Equity Investments Perform Compared to Public Equity 2015 Journal of Investment Management

2 Lins D A Kowalski and C Hoffman (1992) Institutional Investment Diversification Foreign Stocks vs US Farmland In Proceedings of Regional Research Committee NC- 161 Department of Agricultural Economics Kansas State University

3 Shiha Amr N and Jean-Paul Chavas (1995) ldquoCapital Market Segmentation and US Farm Real Estate Pricingrdquo American Journal of Agricultural Economics 77 May 397- 407

4 Lence Sergio H and Douglas J Miller (1999) ldquoTransaction Costs and the Present Value Model of Farmland Iowa 1900-1994rdquo American Journal of Agricultural Economics 81 May 257-272

5 Marvin J Painter (2002) ldquoEfficient Investment in Saskatchewan Farmlandrdquo 13th International Farm Management Congress Wageningen The Netherlands

6 Marvin J Painter (2010) ldquoThe Portfolio Diversification Impact of a Farmland Real Estate Investment Trustrdquo International Business amp Economics Research Journal ndash May 2010 Volume 9 Number 5

7 Marvin J Painter (2015) Assessing the Required Risk Premium for North American Farmland Investment Journal of ASFMRA pp 15-33

8 Robert S Harris Tim Jenkinson and Steven N Kaplan Journal of Finance 2013 9 Steacutephane Koch (2014) ldquoThe risk and return of venture capital Historical return alpha beta and individual performance drivers

(1983-2009)rdquo 10 Markowitz H M (1959) Portfolio Selection Efficient Diversification of Investment New York John Wiley and Sons

AUTHOR BIOGRAPHIES Stephen Johnston - Stephen is a co-founder of Capita Funds and Agcapita Farmland Fund Stephen earned a BSc (1987) and a LLB (1990) from the University of Alberta and a MBA (1994) from the London Business School Stephen is the author of ldquoCantillonrsquos Curserdquo an Austrian economic analysis of a number of key trends and a co-author of ldquoEquicapitarsquos Little Book of What Nextrdquo a detailed analysis of the SME valuation and sale process Barclay Laughland - Barclay has over 15 years experience in private and public corporate restructuring mergers amp acquisition transactions and debt equity financings Barclay received his BComm (1991) and a JD (1994) from the University of Saskatchewan

5

If a risk-free asset is also available the opportunity set is larger and its upper boundary the efficient frontier is a straight-line segment emanating from the vertical axis at the value of the risk-free assets return and tangent to the risky-assets-only opportunity set All portfolios between the risk-free asset and the tangency portfolio are portfolios composed of risk-free assets and the tangency portfolio while all portfolios on the linear frontier above and to the right of the tangency portfolio are generated by borrowing at the risk-free rate and investing the proceeds into the tangency portfoliordquo Source Wikipedia

The time series utilized are 5 10 and 15 years with a view to exposing potential shifts in riskreturn profiles over time

6

SOURCE DATA AND ANALYSIS

Annual change

Canada BC AB SK MB ON QC NB NS PEI NL CPI Oil Natgas Gold GDP Residential Bond SampP VC

1985 -88 -137 -83 -103 -73 -94 -10 10 -43 -114 00 40 34 -56 62 28 00 110 263 117

1986 -69 -66 -82 -83 -49 -48 14 -21 17 -79 00 41 -328 -227 195 33 53 97 147 88

1987 -102 -113 -74 -153 -68 -39 02 06 21 -75 00 44 -122 -139 245 143 125 88 21 145

1988 -73 -13 -82 -106 -113 114 10 -01 26 10 00 39 -28 12 -157 176 89 100 121 143

1989 49 38 57 04 61 238 43 18 131 64 00 51 200 00 -22 114 163 100 274 171

1990 -27 30 -11 -69 35 08 41 59 13 00 00 48 -48 12 -37 50 88 95 -25 241

1991 -54 36 -46 -91 -28 11 27 38 -13 00 61 56 -150 -41 -86 29 -97 95 212 240

1992 -21 75 -32 -38 24 06 12 00 00 52 -20 14 00 61 -57 -30 -04 84 53 282

1993 20 147 19 16 26 10 29 00 00 00 -20 19 -324 172 176 -25 07 80 98 304

1994 85 103 101 95 51 34 60 36 00 213 00 01 261 -93 -22 02 14 65 -25 343

1995 100 136 96 119 56 69 98 241 22 85 00 22 69 -162 10 45 -04 90 353 566

1996 113 98 95 110 105 125 237 163 40 00 00 15 290 400 -47 41 -23 70 236 606

1997 80 105 78 55 117 123 105 73 69 58 26 17 -350 69 -222 38 -09 60 247 553

1998 27 -53 51 05 34 47 92 67 08 35 17 10 -308 -155 06 -32 18 55 306 168

1999 02 04 57 -48 07 21 129 154 57 104 23 18 1056 117 05 70 09 50 89 -33

2000 15 44 43 -22 06 85 116 89 25 27 36 27 81 680 -61 98 09 62 -20 -23

2001 14 09 42 -15 03 48 100 10 21 08 23 25 -300 87 14 -08 35 53 -173 04

2002 53 46 64 39 64 63 82 12 00 08 00 22 500 -263 240 30 34 54 -221 06

2003 38 46 42 31 32 72 33 48 24 15 00 28 24 654 217 177 49 50 285 00

2004 46 94 90 19 37 65 31 26 00 00 38 18 302 119 44 147 47 47 44 28

2005 31 172 61 13 18 57 04 -03 04 00 30 22 357 342 178 143 45 47 84 33

2006 47 193 89 21 58 38 15 29 27 00 58 20 -26 -128 239 125 71 40 123 48

2007 116 187 174 110 91 39 48 -14 31 -14 33 22 514 -22 316 114 107 41 -42 152

2008 117 54 91 149 107 66 117 60 97 -24 40 23 -536 275 40 57 48 40 -401 110

2009 66 -07 48 69 117 62 57 82 57 -14 28 03 731 -540 250 -115 -11 27 300 140

2010 52 -05 44 57 47 68 32 24 37 32 07 18 133 221 306 177 12 34 197 218

2011 148 02 87 229 44 143 89 13 62 15 00 29 49 -118 78 109 23 30 20 140

2012 195 01 133 197 256 301 274 00 98 90 00 15 -84 -327 87 20 22 20 142 140

2013 221 30 129 285 256 159 247 72 19 44 00 09 51 402 -276 10 22 17 234 185

2014 143 42 88 187 122 124 157 80 70 93 00 20 -456 172 -04 -27 11 27 111 43

1985-2014

average 45 43 46 36 48 73 81 48 32 21 13 25 53 51 57 58 32 61 102 172

St dev 80 80 68 105 81 96 85 63 40 61 21 14 352 270 152 73 49 27 170 168

sharpe ratio (RF=3) 019 017 023 006 022 045 060 029 004 (015) (084) (040) 007 008 018 038 004 114 042 085

Kurtosis (017) 012 (018) (010) 175 052 062 405 085 275 (002) (001) 114 063 (047) (041) 181 (115) 141 144

15-yr 2000-2014

average 87 61 82 91 84 143 143 45 57 19 20 20 89 104 111 70 35 39 46 82

St dev 66 69 39 96 79 87 101 37 27 35 20 07 356 347 161 84 29 13 195 77

sharpe ratio (RF=3) 086 044 131 064 068 130 112 041 100 (033) (054) (140) 017 021 051 048 017 070 008 067

Kurtosis (043) (004) 063 (067) 142 234 (199) (276) 020 105 (112) 163 (031) (039) 084 (010) 178 (086) 053 (132)

10-yr 2005-2014

average 114 67 94 132 112 143 143 45 57 22 20 18 73 28 121 61 35 32 77 121

St dev 65 83 41 92 83 87 101 37 27 42 21 08 394 308 179 90 34 10 195 62

sharpe ratio (RF=3) 129 044 158 110 098 130 112 041 100 (019) (050) (158) 011 (001) 051 035 014 024 024 146

Kurtosis (102) (129) 009 (116) 013 234 (199) (276) 020 (053) (092) 098 (028) (057) 165 001 106 (102) 406 (095)

5-yr 2010-2014

average 152 14 96 191 145 159 160 38 57 55 01 18 -61 70 38 58 18 26 141 145

St dev 65 21 36 84 106 86 102 36 30 35 03 07 234 290 210 83 06 07 83 66

sharpe ratio (RF=3) 188 (077) 182 191 108 149 127 022 089 071 (914) (160) (039) 014 004 033 (194) (063) 134 175

Kurtosis 100 (215) (059) 206 (305) 265 (211) (280) (063) (266) 500 123 285 (113) 160 (106) (325) (193) (001) 126

7

1 Efficient Frontiers for the 5-Yr period from 2010 to 2014

Min Risk Max Sharpe

Mean 0144326 0144327 0144328 0144328 0144329 0144329 0144330 0144329

St Dev 0033607 0033607 0033607 0033608 0033608 0033608 0033608 0033608

Sharpe 3401818 3401841 3401853 3401860 3401866 3401868 3401867 3401868

F 055 055 055 055 055 055 055 055

V 045 045 045 045 045 045 045 045

8

2 Efficient Frontiers for the 10-Yr period from 2005 to 2014

Min Risk Max Sharpe

Mean 011663 011667 011672 011677 011682 011687 011692 011697

St Dev 004651 004651 004652 004653 004654 004655 004657 004660

Sharpe 186260 186356 186438 186504 186556 186593 186616 186624

F 0541 0535 0528 0522 0516 0510 0504 0497

V 0459 0465 0472 0478 0484 0490 0496 0503

9

3 Efficient Frontiers for the 15-Yr period from 2000 to 2014

10

CONCLUSIONS A holding of a blended portfolio of farmland and venture capital has been a good investment over multiple time periods both short and long term The introduction of up to approximately 13 venture capital investments into a pure farmland portfolio clearly enhanced financial performance Combining core farmland investments with venture capital investments therefore warrants further investigation to improve portfolio characteristics and to generate synergistic benefits between direct land holdings and technology investments linked to the sector

11

NOTES The sources used to derive the data series in this paper Farmland - Farm Credit Canada Venture Capital - httpswwwquoracomWhat-is-the-average-IRR-achieved-by-venture-capital-funds

1 Robert Harris Tim Jenkinson and Steven Kaplan Journal of Investment Management How Do Private Equity Investments Perform Compared to Public Equity 2015 Journal of Investment Management

2 Lins D A Kowalski and C Hoffman (1992) Institutional Investment Diversification Foreign Stocks vs US Farmland In Proceedings of Regional Research Committee NC- 161 Department of Agricultural Economics Kansas State University

3 Shiha Amr N and Jean-Paul Chavas (1995) ldquoCapital Market Segmentation and US Farm Real Estate Pricingrdquo American Journal of Agricultural Economics 77 May 397- 407

4 Lence Sergio H and Douglas J Miller (1999) ldquoTransaction Costs and the Present Value Model of Farmland Iowa 1900-1994rdquo American Journal of Agricultural Economics 81 May 257-272

5 Marvin J Painter (2002) ldquoEfficient Investment in Saskatchewan Farmlandrdquo 13th International Farm Management Congress Wageningen The Netherlands

6 Marvin J Painter (2010) ldquoThe Portfolio Diversification Impact of a Farmland Real Estate Investment Trustrdquo International Business amp Economics Research Journal ndash May 2010 Volume 9 Number 5

7 Marvin J Painter (2015) Assessing the Required Risk Premium for North American Farmland Investment Journal of ASFMRA pp 15-33

8 Robert S Harris Tim Jenkinson and Steven N Kaplan Journal of Finance 2013 9 Steacutephane Koch (2014) ldquoThe risk and return of venture capital Historical return alpha beta and individual performance drivers

(1983-2009)rdquo 10 Markowitz H M (1959) Portfolio Selection Efficient Diversification of Investment New York John Wiley and Sons

AUTHOR BIOGRAPHIES Stephen Johnston - Stephen is a co-founder of Capita Funds and Agcapita Farmland Fund Stephen earned a BSc (1987) and a LLB (1990) from the University of Alberta and a MBA (1994) from the London Business School Stephen is the author of ldquoCantillonrsquos Curserdquo an Austrian economic analysis of a number of key trends and a co-author of ldquoEquicapitarsquos Little Book of What Nextrdquo a detailed analysis of the SME valuation and sale process Barclay Laughland - Barclay has over 15 years experience in private and public corporate restructuring mergers amp acquisition transactions and debt equity financings Barclay received his BComm (1991) and a JD (1994) from the University of Saskatchewan

6

SOURCE DATA AND ANALYSIS

Annual change

Canada BC AB SK MB ON QC NB NS PEI NL CPI Oil Natgas Gold GDP Residential Bond SampP VC

1985 -88 -137 -83 -103 -73 -94 -10 10 -43 -114 00 40 34 -56 62 28 00 110 263 117

1986 -69 -66 -82 -83 -49 -48 14 -21 17 -79 00 41 -328 -227 195 33 53 97 147 88

1987 -102 -113 -74 -153 -68 -39 02 06 21 -75 00 44 -122 -139 245 143 125 88 21 145

1988 -73 -13 -82 -106 -113 114 10 -01 26 10 00 39 -28 12 -157 176 89 100 121 143

1989 49 38 57 04 61 238 43 18 131 64 00 51 200 00 -22 114 163 100 274 171

1990 -27 30 -11 -69 35 08 41 59 13 00 00 48 -48 12 -37 50 88 95 -25 241

1991 -54 36 -46 -91 -28 11 27 38 -13 00 61 56 -150 -41 -86 29 -97 95 212 240

1992 -21 75 -32 -38 24 06 12 00 00 52 -20 14 00 61 -57 -30 -04 84 53 282

1993 20 147 19 16 26 10 29 00 00 00 -20 19 -324 172 176 -25 07 80 98 304

1994 85 103 101 95 51 34 60 36 00 213 00 01 261 -93 -22 02 14 65 -25 343

1995 100 136 96 119 56 69 98 241 22 85 00 22 69 -162 10 45 -04 90 353 566

1996 113 98 95 110 105 125 237 163 40 00 00 15 290 400 -47 41 -23 70 236 606

1997 80 105 78 55 117 123 105 73 69 58 26 17 -350 69 -222 38 -09 60 247 553

1998 27 -53 51 05 34 47 92 67 08 35 17 10 -308 -155 06 -32 18 55 306 168

1999 02 04 57 -48 07 21 129 154 57 104 23 18 1056 117 05 70 09 50 89 -33

2000 15 44 43 -22 06 85 116 89 25 27 36 27 81 680 -61 98 09 62 -20 -23

2001 14 09 42 -15 03 48 100 10 21 08 23 25 -300 87 14 -08 35 53 -173 04

2002 53 46 64 39 64 63 82 12 00 08 00 22 500 -263 240 30 34 54 -221 06

2003 38 46 42 31 32 72 33 48 24 15 00 28 24 654 217 177 49 50 285 00

2004 46 94 90 19 37 65 31 26 00 00 38 18 302 119 44 147 47 47 44 28

2005 31 172 61 13 18 57 04 -03 04 00 30 22 357 342 178 143 45 47 84 33

2006 47 193 89 21 58 38 15 29 27 00 58 20 -26 -128 239 125 71 40 123 48

2007 116 187 174 110 91 39 48 -14 31 -14 33 22 514 -22 316 114 107 41 -42 152

2008 117 54 91 149 107 66 117 60 97 -24 40 23 -536 275 40 57 48 40 -401 110

2009 66 -07 48 69 117 62 57 82 57 -14 28 03 731 -540 250 -115 -11 27 300 140

2010 52 -05 44 57 47 68 32 24 37 32 07 18 133 221 306 177 12 34 197 218

2011 148 02 87 229 44 143 89 13 62 15 00 29 49 -118 78 109 23 30 20 140

2012 195 01 133 197 256 301 274 00 98 90 00 15 -84 -327 87 20 22 20 142 140

2013 221 30 129 285 256 159 247 72 19 44 00 09 51 402 -276 10 22 17 234 185

2014 143 42 88 187 122 124 157 80 70 93 00 20 -456 172 -04 -27 11 27 111 43

1985-2014

average 45 43 46 36 48 73 81 48 32 21 13 25 53 51 57 58 32 61 102 172

St dev 80 80 68 105 81 96 85 63 40 61 21 14 352 270 152 73 49 27 170 168

sharpe ratio (RF=3) 019 017 023 006 022 045 060 029 004 (015) (084) (040) 007 008 018 038 004 114 042 085

Kurtosis (017) 012 (018) (010) 175 052 062 405 085 275 (002) (001) 114 063 (047) (041) 181 (115) 141 144

15-yr 2000-2014

average 87 61 82 91 84 143 143 45 57 19 20 20 89 104 111 70 35 39 46 82

St dev 66 69 39 96 79 87 101 37 27 35 20 07 356 347 161 84 29 13 195 77

sharpe ratio (RF=3) 086 044 131 064 068 130 112 041 100 (033) (054) (140) 017 021 051 048 017 070 008 067

Kurtosis (043) (004) 063 (067) 142 234 (199) (276) 020 105 (112) 163 (031) (039) 084 (010) 178 (086) 053 (132)

10-yr 2005-2014

average 114 67 94 132 112 143 143 45 57 22 20 18 73 28 121 61 35 32 77 121

St dev 65 83 41 92 83 87 101 37 27 42 21 08 394 308 179 90 34 10 195 62

sharpe ratio (RF=3) 129 044 158 110 098 130 112 041 100 (019) (050) (158) 011 (001) 051 035 014 024 024 146

Kurtosis (102) (129) 009 (116) 013 234 (199) (276) 020 (053) (092) 098 (028) (057) 165 001 106 (102) 406 (095)

5-yr 2010-2014

average 152 14 96 191 145 159 160 38 57 55 01 18 -61 70 38 58 18 26 141 145

St dev 65 21 36 84 106 86 102 36 30 35 03 07 234 290 210 83 06 07 83 66

sharpe ratio (RF=3) 188 (077) 182 191 108 149 127 022 089 071 (914) (160) (039) 014 004 033 (194) (063) 134 175

Kurtosis 100 (215) (059) 206 (305) 265 (211) (280) (063) (266) 500 123 285 (113) 160 (106) (325) (193) (001) 126

7

1 Efficient Frontiers for the 5-Yr period from 2010 to 2014

Min Risk Max Sharpe

Mean 0144326 0144327 0144328 0144328 0144329 0144329 0144330 0144329

St Dev 0033607 0033607 0033607 0033608 0033608 0033608 0033608 0033608

Sharpe 3401818 3401841 3401853 3401860 3401866 3401868 3401867 3401868

F 055 055 055 055 055 055 055 055

V 045 045 045 045 045 045 045 045

8

2 Efficient Frontiers for the 10-Yr period from 2005 to 2014

Min Risk Max Sharpe

Mean 011663 011667 011672 011677 011682 011687 011692 011697

St Dev 004651 004651 004652 004653 004654 004655 004657 004660

Sharpe 186260 186356 186438 186504 186556 186593 186616 186624

F 0541 0535 0528 0522 0516 0510 0504 0497

V 0459 0465 0472 0478 0484 0490 0496 0503

9

3 Efficient Frontiers for the 15-Yr period from 2000 to 2014

10

CONCLUSIONS A holding of a blended portfolio of farmland and venture capital has been a good investment over multiple time periods both short and long term The introduction of up to approximately 13 venture capital investments into a pure farmland portfolio clearly enhanced financial performance Combining core farmland investments with venture capital investments therefore warrants further investigation to improve portfolio characteristics and to generate synergistic benefits between direct land holdings and technology investments linked to the sector

11

NOTES The sources used to derive the data series in this paper Farmland - Farm Credit Canada Venture Capital - httpswwwquoracomWhat-is-the-average-IRR-achieved-by-venture-capital-funds

1 Robert Harris Tim Jenkinson and Steven Kaplan Journal of Investment Management How Do Private Equity Investments Perform Compared to Public Equity 2015 Journal of Investment Management

2 Lins D A Kowalski and C Hoffman (1992) Institutional Investment Diversification Foreign Stocks vs US Farmland In Proceedings of Regional Research Committee NC- 161 Department of Agricultural Economics Kansas State University

3 Shiha Amr N and Jean-Paul Chavas (1995) ldquoCapital Market Segmentation and US Farm Real Estate Pricingrdquo American Journal of Agricultural Economics 77 May 397- 407

4 Lence Sergio H and Douglas J Miller (1999) ldquoTransaction Costs and the Present Value Model of Farmland Iowa 1900-1994rdquo American Journal of Agricultural Economics 81 May 257-272

5 Marvin J Painter (2002) ldquoEfficient Investment in Saskatchewan Farmlandrdquo 13th International Farm Management Congress Wageningen The Netherlands

6 Marvin J Painter (2010) ldquoThe Portfolio Diversification Impact of a Farmland Real Estate Investment Trustrdquo International Business amp Economics Research Journal ndash May 2010 Volume 9 Number 5

7 Marvin J Painter (2015) Assessing the Required Risk Premium for North American Farmland Investment Journal of ASFMRA pp 15-33

8 Robert S Harris Tim Jenkinson and Steven N Kaplan Journal of Finance 2013 9 Steacutephane Koch (2014) ldquoThe risk and return of venture capital Historical return alpha beta and individual performance drivers

(1983-2009)rdquo 10 Markowitz H M (1959) Portfolio Selection Efficient Diversification of Investment New York John Wiley and Sons

AUTHOR BIOGRAPHIES Stephen Johnston - Stephen is a co-founder of Capita Funds and Agcapita Farmland Fund Stephen earned a BSc (1987) and a LLB (1990) from the University of Alberta and a MBA (1994) from the London Business School Stephen is the author of ldquoCantillonrsquos Curserdquo an Austrian economic analysis of a number of key trends and a co-author of ldquoEquicapitarsquos Little Book of What Nextrdquo a detailed analysis of the SME valuation and sale process Barclay Laughland - Barclay has over 15 years experience in private and public corporate restructuring mergers amp acquisition transactions and debt equity financings Barclay received his BComm (1991) and a JD (1994) from the University of Saskatchewan

7

1 Efficient Frontiers for the 5-Yr period from 2010 to 2014

Min Risk Max Sharpe

Mean 0144326 0144327 0144328 0144328 0144329 0144329 0144330 0144329

St Dev 0033607 0033607 0033607 0033608 0033608 0033608 0033608 0033608

Sharpe 3401818 3401841 3401853 3401860 3401866 3401868 3401867 3401868

F 055 055 055 055 055 055 055 055

V 045 045 045 045 045 045 045 045

8

2 Efficient Frontiers for the 10-Yr period from 2005 to 2014

Min Risk Max Sharpe

Mean 011663 011667 011672 011677 011682 011687 011692 011697

St Dev 004651 004651 004652 004653 004654 004655 004657 004660

Sharpe 186260 186356 186438 186504 186556 186593 186616 186624

F 0541 0535 0528 0522 0516 0510 0504 0497

V 0459 0465 0472 0478 0484 0490 0496 0503

9

3 Efficient Frontiers for the 15-Yr period from 2000 to 2014

10

CONCLUSIONS A holding of a blended portfolio of farmland and venture capital has been a good investment over multiple time periods both short and long term The introduction of up to approximately 13 venture capital investments into a pure farmland portfolio clearly enhanced financial performance Combining core farmland investments with venture capital investments therefore warrants further investigation to improve portfolio characteristics and to generate synergistic benefits between direct land holdings and technology investments linked to the sector

11

NOTES The sources used to derive the data series in this paper Farmland - Farm Credit Canada Venture Capital - httpswwwquoracomWhat-is-the-average-IRR-achieved-by-venture-capital-funds

1 Robert Harris Tim Jenkinson and Steven Kaplan Journal of Investment Management How Do Private Equity Investments Perform Compared to Public Equity 2015 Journal of Investment Management

2 Lins D A Kowalski and C Hoffman (1992) Institutional Investment Diversification Foreign Stocks vs US Farmland In Proceedings of Regional Research Committee NC- 161 Department of Agricultural Economics Kansas State University

3 Shiha Amr N and Jean-Paul Chavas (1995) ldquoCapital Market Segmentation and US Farm Real Estate Pricingrdquo American Journal of Agricultural Economics 77 May 397- 407

4 Lence Sergio H and Douglas J Miller (1999) ldquoTransaction Costs and the Present Value Model of Farmland Iowa 1900-1994rdquo American Journal of Agricultural Economics 81 May 257-272

5 Marvin J Painter (2002) ldquoEfficient Investment in Saskatchewan Farmlandrdquo 13th International Farm Management Congress Wageningen The Netherlands

6 Marvin J Painter (2010) ldquoThe Portfolio Diversification Impact of a Farmland Real Estate Investment Trustrdquo International Business amp Economics Research Journal ndash May 2010 Volume 9 Number 5

7 Marvin J Painter (2015) Assessing the Required Risk Premium for North American Farmland Investment Journal of ASFMRA pp 15-33

8 Robert S Harris Tim Jenkinson and Steven N Kaplan Journal of Finance 2013 9 Steacutephane Koch (2014) ldquoThe risk and return of venture capital Historical return alpha beta and individual performance drivers

(1983-2009)rdquo 10 Markowitz H M (1959) Portfolio Selection Efficient Diversification of Investment New York John Wiley and Sons

AUTHOR BIOGRAPHIES Stephen Johnston - Stephen is a co-founder of Capita Funds and Agcapita Farmland Fund Stephen earned a BSc (1987) and a LLB (1990) from the University of Alberta and a MBA (1994) from the London Business School Stephen is the author of ldquoCantillonrsquos Curserdquo an Austrian economic analysis of a number of key trends and a co-author of ldquoEquicapitarsquos Little Book of What Nextrdquo a detailed analysis of the SME valuation and sale process Barclay Laughland - Barclay has over 15 years experience in private and public corporate restructuring mergers amp acquisition transactions and debt equity financings Barclay received his BComm (1991) and a JD (1994) from the University of Saskatchewan

8

2 Efficient Frontiers for the 10-Yr period from 2005 to 2014

Min Risk Max Sharpe

Mean 011663 011667 011672 011677 011682 011687 011692 011697

St Dev 004651 004651 004652 004653 004654 004655 004657 004660

Sharpe 186260 186356 186438 186504 186556 186593 186616 186624

F 0541 0535 0528 0522 0516 0510 0504 0497

V 0459 0465 0472 0478 0484 0490 0496 0503

9

3 Efficient Frontiers for the 15-Yr period from 2000 to 2014

10

CONCLUSIONS A holding of a blended portfolio of farmland and venture capital has been a good investment over multiple time periods both short and long term The introduction of up to approximately 13 venture capital investments into a pure farmland portfolio clearly enhanced financial performance Combining core farmland investments with venture capital investments therefore warrants further investigation to improve portfolio characteristics and to generate synergistic benefits between direct land holdings and technology investments linked to the sector

11

NOTES The sources used to derive the data series in this paper Farmland - Farm Credit Canada Venture Capital - httpswwwquoracomWhat-is-the-average-IRR-achieved-by-venture-capital-funds

1 Robert Harris Tim Jenkinson and Steven Kaplan Journal of Investment Management How Do Private Equity Investments Perform Compared to Public Equity 2015 Journal of Investment Management

2 Lins D A Kowalski and C Hoffman (1992) Institutional Investment Diversification Foreign Stocks vs US Farmland In Proceedings of Regional Research Committee NC- 161 Department of Agricultural Economics Kansas State University

3 Shiha Amr N and Jean-Paul Chavas (1995) ldquoCapital Market Segmentation and US Farm Real Estate Pricingrdquo American Journal of Agricultural Economics 77 May 397- 407

4 Lence Sergio H and Douglas J Miller (1999) ldquoTransaction Costs and the Present Value Model of Farmland Iowa 1900-1994rdquo American Journal of Agricultural Economics 81 May 257-272

5 Marvin J Painter (2002) ldquoEfficient Investment in Saskatchewan Farmlandrdquo 13th International Farm Management Congress Wageningen The Netherlands

6 Marvin J Painter (2010) ldquoThe Portfolio Diversification Impact of a Farmland Real Estate Investment Trustrdquo International Business amp Economics Research Journal ndash May 2010 Volume 9 Number 5

7 Marvin J Painter (2015) Assessing the Required Risk Premium for North American Farmland Investment Journal of ASFMRA pp 15-33

8 Robert S Harris Tim Jenkinson and Steven N Kaplan Journal of Finance 2013 9 Steacutephane Koch (2014) ldquoThe risk and return of venture capital Historical return alpha beta and individual performance drivers

(1983-2009)rdquo 10 Markowitz H M (1959) Portfolio Selection Efficient Diversification of Investment New York John Wiley and Sons

AUTHOR BIOGRAPHIES Stephen Johnston - Stephen is a co-founder of Capita Funds and Agcapita Farmland Fund Stephen earned a BSc (1987) and a LLB (1990) from the University of Alberta and a MBA (1994) from the London Business School Stephen is the author of ldquoCantillonrsquos Curserdquo an Austrian economic analysis of a number of key trends and a co-author of ldquoEquicapitarsquos Little Book of What Nextrdquo a detailed analysis of the SME valuation and sale process Barclay Laughland - Barclay has over 15 years experience in private and public corporate restructuring mergers amp acquisition transactions and debt equity financings Barclay received his BComm (1991) and a JD (1994) from the University of Saskatchewan

9

3 Efficient Frontiers for the 15-Yr period from 2000 to 2014

10

CONCLUSIONS A holding of a blended portfolio of farmland and venture capital has been a good investment over multiple time periods both short and long term The introduction of up to approximately 13 venture capital investments into a pure farmland portfolio clearly enhanced financial performance Combining core farmland investments with venture capital investments therefore warrants further investigation to improve portfolio characteristics and to generate synergistic benefits between direct land holdings and technology investments linked to the sector

11

NOTES The sources used to derive the data series in this paper Farmland - Farm Credit Canada Venture Capital - httpswwwquoracomWhat-is-the-average-IRR-achieved-by-venture-capital-funds

1 Robert Harris Tim Jenkinson and Steven Kaplan Journal of Investment Management How Do Private Equity Investments Perform Compared to Public Equity 2015 Journal of Investment Management

2 Lins D A Kowalski and C Hoffman (1992) Institutional Investment Diversification Foreign Stocks vs US Farmland In Proceedings of Regional Research Committee NC- 161 Department of Agricultural Economics Kansas State University

3 Shiha Amr N and Jean-Paul Chavas (1995) ldquoCapital Market Segmentation and US Farm Real Estate Pricingrdquo American Journal of Agricultural Economics 77 May 397- 407

4 Lence Sergio H and Douglas J Miller (1999) ldquoTransaction Costs and the Present Value Model of Farmland Iowa 1900-1994rdquo American Journal of Agricultural Economics 81 May 257-272

5 Marvin J Painter (2002) ldquoEfficient Investment in Saskatchewan Farmlandrdquo 13th International Farm Management Congress Wageningen The Netherlands

6 Marvin J Painter (2010) ldquoThe Portfolio Diversification Impact of a Farmland Real Estate Investment Trustrdquo International Business amp Economics Research Journal ndash May 2010 Volume 9 Number 5

7 Marvin J Painter (2015) Assessing the Required Risk Premium for North American Farmland Investment Journal of ASFMRA pp 15-33

8 Robert S Harris Tim Jenkinson and Steven N Kaplan Journal of Finance 2013 9 Steacutephane Koch (2014) ldquoThe risk and return of venture capital Historical return alpha beta and individual performance drivers

(1983-2009)rdquo 10 Markowitz H M (1959) Portfolio Selection Efficient Diversification of Investment New York John Wiley and Sons

AUTHOR BIOGRAPHIES Stephen Johnston - Stephen is a co-founder of Capita Funds and Agcapita Farmland Fund Stephen earned a BSc (1987) and a LLB (1990) from the University of Alberta and a MBA (1994) from the London Business School Stephen is the author of ldquoCantillonrsquos Curserdquo an Austrian economic analysis of a number of key trends and a co-author of ldquoEquicapitarsquos Little Book of What Nextrdquo a detailed analysis of the SME valuation and sale process Barclay Laughland - Barclay has over 15 years experience in private and public corporate restructuring mergers amp acquisition transactions and debt equity financings Barclay received his BComm (1991) and a JD (1994) from the University of Saskatchewan

10

CONCLUSIONS A holding of a blended portfolio of farmland and venture capital has been a good investment over multiple time periods both short and long term The introduction of up to approximately 13 venture capital investments into a pure farmland portfolio clearly enhanced financial performance Combining core farmland investments with venture capital investments therefore warrants further investigation to improve portfolio characteristics and to generate synergistic benefits between direct land holdings and technology investments linked to the sector

11

NOTES The sources used to derive the data series in this paper Farmland - Farm Credit Canada Venture Capital - httpswwwquoracomWhat-is-the-average-IRR-achieved-by-venture-capital-funds

1 Robert Harris Tim Jenkinson and Steven Kaplan Journal of Investment Management How Do Private Equity Investments Perform Compared to Public Equity 2015 Journal of Investment Management

2 Lins D A Kowalski and C Hoffman (1992) Institutional Investment Diversification Foreign Stocks vs US Farmland In Proceedings of Regional Research Committee NC- 161 Department of Agricultural Economics Kansas State University

3 Shiha Amr N and Jean-Paul Chavas (1995) ldquoCapital Market Segmentation and US Farm Real Estate Pricingrdquo American Journal of Agricultural Economics 77 May 397- 407

4 Lence Sergio H and Douglas J Miller (1999) ldquoTransaction Costs and the Present Value Model of Farmland Iowa 1900-1994rdquo American Journal of Agricultural Economics 81 May 257-272

5 Marvin J Painter (2002) ldquoEfficient Investment in Saskatchewan Farmlandrdquo 13th International Farm Management Congress Wageningen The Netherlands

6 Marvin J Painter (2010) ldquoThe Portfolio Diversification Impact of a Farmland Real Estate Investment Trustrdquo International Business amp Economics Research Journal ndash May 2010 Volume 9 Number 5

7 Marvin J Painter (2015) Assessing the Required Risk Premium for North American Farmland Investment Journal of ASFMRA pp 15-33

8 Robert S Harris Tim Jenkinson and Steven N Kaplan Journal of Finance 2013 9 Steacutephane Koch (2014) ldquoThe risk and return of venture capital Historical return alpha beta and individual performance drivers

(1983-2009)rdquo 10 Markowitz H M (1959) Portfolio Selection Efficient Diversification of Investment New York John Wiley and Sons

AUTHOR BIOGRAPHIES Stephen Johnston - Stephen is a co-founder of Capita Funds and Agcapita Farmland Fund Stephen earned a BSc (1987) and a LLB (1990) from the University of Alberta and a MBA (1994) from the London Business School Stephen is the author of ldquoCantillonrsquos Curserdquo an Austrian economic analysis of a number of key trends and a co-author of ldquoEquicapitarsquos Little Book of What Nextrdquo a detailed analysis of the SME valuation and sale process Barclay Laughland - Barclay has over 15 years experience in private and public corporate restructuring mergers amp acquisition transactions and debt equity financings Barclay received his BComm (1991) and a JD (1994) from the University of Saskatchewan

11

NOTES The sources used to derive the data series in this paper Farmland - Farm Credit Canada Venture Capital - httpswwwquoracomWhat-is-the-average-IRR-achieved-by-venture-capital-funds

1 Robert Harris Tim Jenkinson and Steven Kaplan Journal of Investment Management How Do Private Equity Investments Perform Compared to Public Equity 2015 Journal of Investment Management

2 Lins D A Kowalski and C Hoffman (1992) Institutional Investment Diversification Foreign Stocks vs US Farmland In Proceedings of Regional Research Committee NC- 161 Department of Agricultural Economics Kansas State University

3 Shiha Amr N and Jean-Paul Chavas (1995) ldquoCapital Market Segmentation and US Farm Real Estate Pricingrdquo American Journal of Agricultural Economics 77 May 397- 407

4 Lence Sergio H and Douglas J Miller (1999) ldquoTransaction Costs and the Present Value Model of Farmland Iowa 1900-1994rdquo American Journal of Agricultural Economics 81 May 257-272

5 Marvin J Painter (2002) ldquoEfficient Investment in Saskatchewan Farmlandrdquo 13th International Farm Management Congress Wageningen The Netherlands

6 Marvin J Painter (2010) ldquoThe Portfolio Diversification Impact of a Farmland Real Estate Investment Trustrdquo International Business amp Economics Research Journal ndash May 2010 Volume 9 Number 5

7 Marvin J Painter (2015) Assessing the Required Risk Premium for North American Farmland Investment Journal of ASFMRA pp 15-33

8 Robert S Harris Tim Jenkinson and Steven N Kaplan Journal of Finance 2013 9 Steacutephane Koch (2014) ldquoThe risk and return of venture capital Historical return alpha beta and individual performance drivers

(1983-2009)rdquo 10 Markowitz H M (1959) Portfolio Selection Efficient Diversification of Investment New York John Wiley and Sons

AUTHOR BIOGRAPHIES Stephen Johnston - Stephen is a co-founder of Capita Funds and Agcapita Farmland Fund Stephen earned a BSc (1987) and a LLB (1990) from the University of Alberta and a MBA (1994) from the London Business School Stephen is the author of ldquoCantillonrsquos Curserdquo an Austrian economic analysis of a number of key trends and a co-author of ldquoEquicapitarsquos Little Book of What Nextrdquo a detailed analysis of the SME valuation and sale process Barclay Laughland - Barclay has over 15 years experience in private and public corporate restructuring mergers amp acquisition transactions and debt equity financings Barclay received his BComm (1991) and a JD (1994) from the University of Saskatchewan

12

Karim Kadry - Karim has 20 years of international experience in the investment and financial fields He has lectured and presented at a number of universities including the American University in Cairo and Mount Royal University Karim has a BSc from Cairo University MBA jointly from IESE School of Business and Nile University and a CFA