Deal focus: Change at the margins for Proterra Asia

Proterra Asia has spent much of the last decade carving a niche as an independent regional sector specialist in food and agriculture. Formerly part of Black River Asset Management, the alternative investment arm of agribusiness giant Cargill, the Asia team spun out alongside their global colleagues in 2015, leading to the creation of Proterra Investment Partners.

There were already standalone Asia funds. The second of these launched prior to the spinout – it was originally called Black River Food Fund 2 – and closed on USD 700m. The Asia team has been active in the region since 2010, making more than 20 investments and accumulating USD 1.6bn in assets under management (AUM) as of March 2021. Fund II was marked at 1.9x.

A third fund of USD 200m, employing a novel core equity-plus-co-investment structure under Singapore’s variable capital company (VCC) regime, closed in late 2022. More recently, Proterra Asia has seen a change in ownership at the management entity level, with Australia’s Challenger Funds Management taking out a minority interest held by Sydney-listed Pacific Current Group (PCG).

“It’s a minority stake, so there’s big strategic change. But it does give our sector more support, credibility, and endorsement. While food and agriculture is a relatively niche space compared to some other sectors, it is increasingly interesting from a sustainability, food security, and health perspective,” said Tai Lin, a managing partner at Proterra Asia.

The investment was made by Challenger subsidiary Fidante, which is building up a portfolio of equity interests in third-party investment managers. Lin noted that Fidante would unlock distribution channels for Proterra Asia in certain parts of the world.

Fidante said that it wanted to bring the strategy to the attention of investors based in the UK and Europe. The key selling point is exposure to “growing consumer demand driven by expanding urban populations and the emergence of a new generation seeking safe, high-quality food products that prioritize health, nutrition, convenience, social impact, and sustainability.”

PCG is in essence much like Fidante. The firm has a portfolio of 16 investment managers around the world and acquired a 16% position in Proterra Investment Partners – which has been partner-owned ever since the spinout from Black River – in 2019. As part of the deal, PCG also obtained an indirect interest in Proterra Asia, which is an affiliate of the global business.

Proterra Investment Partners has USD 3.7bn under management across agriculture, food, and metals and mining. PCG valued its interest in the firm at AUD 40.4m (USD 26.7m), or 7% of the total book value of its investments in third-party managers. It is entitled to 8% of gross management revenues and 16% of the proceeds in the event of a sale.

Proterra Asia’s strategy is specialist in nature but broad in terms of equity commitment. The rigid and programmatic investment approach that characterised its early years in Asia was abandoned some time ago.

The firm has supported businesses from a very early stage. It first invested in Oatside, a Singapore-headquartered oat milk brand, when there were zero employees and accounts for most of the USD 22m raised by the company to date. There have also been larger commitments, such as the USD 100m pledged to support an Asia rollout of Just Egg, a protein replacement brand focused on eggs.

This guided the choice of structure for Fund III. A VCC can serve as an umbrella for multiple sub-entities and shares classes. It brings cost savings – there’s no need to pay lawyers to draw up a new set of documents every time a firm wants to explore a new strategy – and flexibility. Investors can participate at the corporate or project level, equivalents to the fund and sub-fund levels.

The USD 200m raised by Proterra Asia is core equity. Whenever the firm wants to flex up to address a larger opportunity, it can draw on co-investment from LPs and funnel the capital into a sub-fund for each deal. Lin declined to estimate how much might be put to work over the life of the fund.

“Co-investment will stay within the LP group, we aren’t going to raise co-investment money from anyone else,” he added. “We didn’t know exactly how it would work out when we started, but the VCC does offer a lot of flexibility – a sub-fund can effectively remain open for the entire investment period – and there are tax advantages as well.”

The adoption of the VCC structure is described as a learning process. The drawback for many LPs is a lack of familiarity with what is ultimately a corporate structure rather than a limited partnership. Industry participants observe that it is hard enough to convince a US-based LP to support an entity domiciled outside of the Cayman Islands, let alone one that doesn’t conform to type.

However, Proterra’s investor base is more heavily weighted towards Asia and Europe. LPs that have disclosed their participation include Development Bank of Japan.

“Most Asia-based LPs bought into the VCC structure very quickly. Some of the European LPs wanted to do more work, but once they ran the legal and tax due diligence and understood what it involved, they signed up,” said Lin, adding that no one passed on the fund explicitly because they didn’t like the structure. “It is all about investing the time to understand something.”

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• Topics
• GPs
• Greater China
• Southeast Asia
• South Asia
• Consumer
• Fundraising
• Growth
• Proterra Investment Partners
• Agriculture
• food & beverage
• Australia