Transcription
Hello everyone. Um, welcome to the Ver Path Introduction Series. Today, we are going to discuss, um, at a very high level, how Ver Path is unique in the farmland investment space. Um, it's, uh, the way it analyzes the asset class and in relation to its competitors.
So first of all, I think it's worth mentioning that very few managers in the farmland investment space have more than 15 years experience. The senior team at Ver Path has actually been investing in farmland now for for 17 years and counting. Um, and over that time, obviously, has developed, uh, a lot of expertise and a suite of very unique farmland investment tools and models and monitoring, um, software, which we can talk about in due course.
So first of all, um, we are a market leader. I would describe us as a market leader. Um, we manage more than 120,000 acres and we're growing quite rapidly. Um, that's all Canadian row crop land. Um, and I think more importantly, what makes us a market leader is that as a management team investing in farmland, we have never experienced, we've never had a down quarter since 2007. And we beat the Canadian Farmland Index since 2007.
Another element of our, of our firm that makes us unique is our use of technology. Um, we have a leading-edge suite, uh, of monitoring tools, uh, which is composed of real-time satellite, um, imagery during the growing season, um, artificial intelligence tools that review those, uh, images, and then recurring agrology over a three to five-year period, all testing the same locations. And all of this data is incorporated into a single analytical repository, a single software system that we built from scratch.
And then on top of that, um, on the investment screening and portfolio construction side of our, of our, um, fund, we have built a lot of very unique, how I would describe as data or factor-driven approaches. Um, we're less concerned about just the absolute price of farmland. I'm much more concerned about what we describe as the factors, as the components of farmland that generate returns. And for us, it's the optimizing the productivity-adjusted price discount, the historical yield volatility, and this historical trend. And those tools, which are, are quite unique to, to how we run our business in relation to all of our competitors, um, are a big part of that.
Another thing I think that makes us unique, um, is our really relentless focus on risk. Um, farmland as a strategy is a very dependable, generates returns with very few drawdowns and good volatility profile. Um, and so we've, uh, we've focused our attention on stripping out the obvious risks from the strategy, um, and in that way, you know, capturing the returns in the least risky way possible maximizes the risk-adjusted behavior of our, of our portfolios. And so we've, we've, you know, we've, we've got a lot of very well-established processes and approaches to mitigating those key risks, and they're quite easy to understand. It's weather risk, valuation risk, and farming practices.
Now, I want to talk a little bit about, um, returns because we, I did mention that we've been investing since 2007 and we've beat the benchmark since inception. Um, and that's obviously an important data point. And it, if this, this chart here is our quarterly return series. It's every single fund, every single transaction, as if it was a single data series. Um, it's land and rental returns combined. Um, it's unlevered. It, it's gross of fees. Um, so it's just the raw aggregate returns that we generated from all of our holdings. And you can see our, these are quarterly returns. We have averaged between 5% quarterly and 2.5% quarterly. Um, so a really good, compelling return profile. Those are very high nominal rates of return.
Just as importantly, because I mentioned we do focus on risk and we do focus on port, these portfolio construction tools is that we have generated those returns and we have beaten the Canadian benchmark. You can see here that the IRR Ver Path, um, this is land appreciation only now versus the Canadian Farmland Benchmark. Ver Path has generated in excess of an 11% IRR since 2007, while the benchmark was only 9%. But really importantly is that we didn't change the risk behavior of farmland. Farmland has really low volatility, um, which is, you know, is an analog for risk. And so the benchmark, we beat the benchmark return, but we didn't change the risk behavior, which is exactly what you would want us to do. Um, and so once again, we increase the risk-adjusted rate of returns of a Canadian farmland portfolio with our methodologies and our focus on risk and our asset selection tools.
Now, I just want to run you through technology. And technology is obviously a, a very expansive topic. But, um, we do, we have built a leading-edge suite of monitoring tools. We don't operate farmland, so we have to be an expert in monitoring. And it's satellite, and this is just an ex, an example of some satellite imagery for, you know, five different fields over the course of the growing season. And you can see that the satellites take very detailed pictures of the fields. Um, and then of course, there's this, this recurring agrology, which is tens of thousands of pages of data every three to five years as we do the agrology for our entire portfolio. All of which is monitored by software.
And then finally, the AI tools look at this imagery, um, that I mentioned, this satellite imagery, and they derive certain data points: the cultivation ratio, the crop types, the tillage types. And in due course, as the data sets get bigger, there'll be productivity. And all of this works together to make our monitoring system highly accurate, highly scalable, and very cost-effective. And that's critical because you want to, when you're investing in farmland, you want to own the land but not operate it. But if you don't operate it, you have to be an expert on monitoring. And I, that technology is, um, an element of our business where we are very unique.
Finally, I want to elaborate a bit more on that risk management that I mentioned. You know, we do pay very careful attention to risk. And the risk in a farmland portfolio is, is quite obvious: it's weather, farming practices, and valuation. And so how do you mitigate those risks? Well, it's actually, when you think about it, quite straightforward. You have to be disciplined and you have to follow this process continuously and not deviate from these best practices. But, but you can implement them, and you will reduce those three risks that you see above.
First of all, do not operate farms. If you don't operate farms, you remove commodity price risk, short and medium-term commodity price risk, from your returns. You want to operate many widely dispersed land locations. You don't want to have all your assets in a single location. You want to be dispersed over a wide area. That diversifies, that diversifies weather risk. You want many widely dispersed operators because that diversifies farming practices. You don't want a single operator on a single piece of land. You want lots of operators on lots of different pieces of land.
You want to monitor. You want to be very high-tech in your monitoring because your monitoring, um, has to be very scalable, has to be cost-effective, and has to be accurate. And so, as I mentioned, we use satellites and artificial intelligence and AR and agrology. And all that data is, is downloaded into a software system that does all the monitoring and throws alerts. And that ensures good farming practices.
You want to screen for low yield volatility. And what I mean by that is you want, you want to buy land in areas where the yield, the historical yield isn't volatile, um, because if it's not volatile, that shows that there's consistent weather and you've therefore mitigated weather risk. You want to screen for positive yield trends because that shows you that there's improving weather and once again, therefore, you've mitigated weather risk. You want to screen for a low price per ton of yield because that shows you're getting a discount. That shows that you've bought value. And value is a very powerful return driver because it's typically mean-reverting. Um, and so that mitigates valuation risk.
And then finally, don't use a lot of leverage. And it goes without saying, if you can generate good risk-adjusted returns and you without using leverage, your fund is more resilient. And we don't use a lot of leverage. We use the minimal amount of leverage that's possible in order to manage the cash position of the fund, but not as a principal return driver in our overall strategy. And that makes us more resilient.
So I want to thank you for listening in today. There's a number of other short presentations in this advisor video series, which I encourage you to watch. Um, and so that's it. Thank you very much for your attention.