Proterra Investment Partners to double down on Indonesia’s food sector

Harvesting rice in Bali, Indonesia

Exuding optimism about private equity (PE) investment opportunities in Indonesia’s expanding commodity sector, food and agriculture-focused PE player Proterra Investment Partners sees the firm’s networks and deep sectoral knowledge fuelling its success in the country.

Unsurprisingly, the firm sees itself getting better at what it does with every new fund — earlier funds doing “just fine” and recent funds “performing very well” — according to Tai Lin, managing director at the firm that spun out of Black River Asset Management, a division of Cargill early last year.

The US-based firm claims to make PE investments in natural resource sectors of agriculture, food, and metals and mining. It has largely been seen making investments in Asian food sector along with agricultural/farmland sector across South America and Australia.

Managing about $2.5 billion of private equity fund commitments and assets under management at present, the firm’s last major deal was a $100 million investment in Indonesia’s FKS Food & Agri.

With a return profile that varies by fund vintage, Lin in an interaction with DEALSTREETASIA said: “Earlier funds are doing just fine and our more recent funds are performing very well.  We have certainly learned a lot since we started to invest in food & agriculture private equity nearly ten years ago and we are getting better at what we do with every new fund.”

Explaining how the PE firm’s Food Fund has worked he said the vehicle’s investments have ranged from $15-150 million for each investee exposure. “That is a wide range. We have started and established companies, invested into greenfield construction projects, purchased minority stakes, conducted MBO/LBOs, taken public companies private, and today we own majority stakes in nearly half of our portfolio companies,” he noted.

Giving a closer look at how Proterra navigated the playing field over the years, he said that the firm has not been bound by technical investment criteria, instead it has tried to partner with best-in-class operators or unique companies with an edge.

The philosophy has largely been the firm’s priority, nevertheless deals have come in different shapes and sizes.”We hold portfolio investments for between 3-8 years.  We are patient investors in this cyclical industry and will consider all the options for exits,” Lin said. Talking on exits, the firm last month was learnt to have sold a 25 per cent stake in Hyderabad-based Dodla Dairy to TPG for about $47 million.

Also Read: Vietnam: Seedcom-backed Cau Dat Farm aims to solve the math of agriculture with IoT

Indonesian commodities & cyclical downturns

A major development that Lin sees affecting the natural resources space – and shaping the firms Indonesia strategy – in the 2017-2030 period is the economic development and maturation of Indonesia, which is projected to be the fourth largest economy in the world after China, India and the US, and Jakarta forecast to be the third largest by GDP (outside of China and US) after London and Tokyo.

Lin, who keeps a pulse on the food sector in Asia, shuttles between Shanghai and Singapore. On the latest trend for Indonesia, Lin opined: “This macro trend in the 4th most populated country in the world is significant. What this means is that GDP per capita will continue to drive food consumption per capita and the annual increase in the deficit of agricultural commodities is staggering.  The country is lucky to be endowed with so many natural resources (like coal, oil, ore etc.) but it lacks (the characteristics to produce its own) food commodities; this is the structural imbalance that most international players have not really managed to take advantage of. ” 

Proterra’s focus in Indonesia is through its Food Fund strategy.  The firm is currently partnered with two out of three leading agri-players in Indonesia. It started a very successful joint venture with one of the leading agriculture and food families Japfa many years ago and it recently entered into a partnership with another leading agri & food group, FKS Food & Agri.  

Further, it may be noted here that Proterra’s exposure to agriculture, food, and metals and mining – all of which are commodities subject to cyclical downturns. Lin believes that for PE players to protect their interests against market shocks, the fund managers will need to “understand the dynamics of the industry cycle that they invest in.”  

He elaborates: “The Chairman of Cargill used to say that ‘the best cure for high prices is high prices, and the best cure for low prices is low prices’.  Sometimes we see ourselves still carrying the Cargill philosophies, even though we have already spun out of Cargill.  If your portfolio companies can operate above industry levels you can usually weather a down-cycle better than the competitors and usually others will fall out of the market first, and sure enough, the cycle will come back.”

The firm puts a lot of weight on productivity and efficiency – operations excellence.  “We don’t always achieve that but we try very hard.  Our sow farms in China produce the best litters, our dairy farms in Indonesia and China have the highest milk yields, and our duck operations in Thailand were the best-run in the world.  And sometimes our portfolio company’s edge comes from a unique element that the company possesses that others don’t – this is the case in the citrus concentrate facility in India that we built from scratch, it is the first and only one in the country,” he added.  

Also Read: China: JD partners Sequoia-backed Yimutian to boost agriculture e-commerce

Edited excerpts 

Is ProTerra in the process of raising any new funds? What do you see as the emerging investment themes that ProTerra will explore in the coming years? 

Proterra currently has three investment strategies including Food, Agriculture and Metals & Mining (in order of AUM).  While we are currently investing out of existing funds into these three industries, we regularly look for continuations and extensions of existing mandates. 

We will also look towards more focused geographic mandates as opportunities present themselves and new geographies where we believe we can offer value-added solutions to our institutional investor base.

Can you characterise your current relationship with your limited partners (LPs) and your fund structure at the moment? Is it mostly family offices, endowments, foundation and funds of funds? 

Proterra has a very solid and reputable group of LPs who are thought-leaders in their respective fields.  Our relationship with them is positive and characterised by trust and openness.  They have shown continued excitement and support for our funds and some have taken the opportunity to directly co-invest with our funds.  Our LP base includes U.S. university endowments, European and U.S. pension funds, Insurance and corporate investors, including our former parent Cargill.

What investment thesis defines the ProTerra investment strategy and its approach to portfolio firms? 

Within Proterra’s Food Fund strategy, we believe that increasing and rapidly evolving consumer demand for safer and higher quality food products in emerging Asian economies offers a compelling return opportunity.  We seek growth equity investment in primary food production (like meat and milk), value-added food processing, and supply chain management. 

The continued urbanisation of emerging Asia, their rising middle class, and shifting dietary preferences are driving long-term growth in many sub-sectors of the food & agri category.  We invest into these themes using them as the tailwind.

Our approach to portfolio firms depends on the company and is customised case-by-case.  In the case of building companies from scratch, we are very active and hands-on, down to little details. 

We hire external professional managers for operating tasks but our own Proterra team is usually quite interlinked into these operations.  In the case of more passive investments, we are active board participants, taking leadership roles in forming a business strategy, operating benchmarking, industry consolidation, management evaluation, governance improvement, etc.

There’s been a significant commodities slump in recent years, driven by China’s economic growth slowing down. Which countries will be the next drivers of growth in the region and what specific commodities do you expect to see growing?   

The volumes of soft commodities consumed in Asia might not grow at the fast rate it has in the past 20 years.  Our Food Fund strategy is evolving with that.  We are increasingly more focused on partnering with or building companies that are increasingly integrated across their whole value chain, from raw materials to production to distribution. 

As such, even though economic growth in China has come down to a new ~6%-level, we see exciting developments in the food industry as China’s consumers continue to demand higher-quality food with an emphasis on provenance and safety.  We like food producers and processors that have an influence on their value chains, up and down. 

For India, we see the macro as strong as ever for a prolonged growth-period and this growth is accompanied by a shift towards more branding and more organized trade than in the past.  People in the past there were consuming more unbranded pulses for example and are now buying more branded packs. 

India also has a competitive advantage in the export of certain food products now and we foresee ongoing professionalisation of this sector.  We also expect that demand for grains, oilseeds and sugar will continue to grow across Southeast Asia were the local production can’t keep up with demand and the annual deficit is growing dramatically. 

This means that the trade flow of soft commodities from the Western Hemisphere to the Eastern Hemisphere will undergo another structural shift in a positive way for us.

With Asian PE said to be coming of age, how do you see this applying to the natural resources and commodities sector? 

PE in Asia is NOT coming of age.  PE in Asia in the traditional way IS coming of age.  We don’t see many more opportunities going forward for “pre-IPO flips” and we don’t see much room for a simple “buying cheap and selling high” given the increasing sophistication of entrepreneurs and the existing liquidity available for investment right now. 

The key to success in PE in Asia will be more and more driven by a focus and understanding of the sectors that one invest in.  If you are focused, you will have a very deep and distinguished network in the industry and that will help you along the way, in origination, in due diligence, and in post-investment value-add. 

It’s a bit of a cliché but network and relationships – the ones based on trust – really can help you out here.  With the focus on the sector also comes the focus on operating excellence.  And this will lead to organic improvement and growth.

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.