Pension Fund Investment in Agricultural Land

GAO was requested to evaluate the impact that the American Agricultural Investment Management (AAIM) Company's plan to seek investment opportunities in farmland for pension funds is likely to have on the family farm structure. Issues considered concerned: (1) the attractiveness of agricultural land as an investment for nonfarm capital; (2) whether U.S. agriculture has the necessary capital; (3) the structure of AAIM; (4) the proposed business and plans of AAIM; and (5) the potential immediate and long-range impact of pension fund investment in agricultural land.

GAO found that: (1) although real estate in general has become a progressively more attractive investment during the last decade, agricultural land does not appear to be as attractive an investment as other commercial real estate; (2) according to the Department of Agriculture, U.S. agriculture is not lacking in capital; (3) AAIM provides advice on acquiring farm properties, manages farm properties, and invests farm operating cash in short-term debt securities; (4) AAIM plans to charge a one-time fee of 2.5 percent of the property value for advice on acquiring farm property and an annual fee of .3 percent of the value of the assets for managing farm properties and short-term debt securities; and (5) Federal, State, and local laws and regulations place certain limitations on the types of investments pension funds can make. While it is difficult to assess the likely impact of the AAIM plan to seek investment opportunities in farmland through pension fund investment, indications are that: (1) about $1 of every $4,429 of pension assets is now in direct investment in farmland; (2) pension fund fiduciaries do not intend to increase the percentage of their portfolios devoted to farmland; and (3) the fact that no pension funds are subscribing to the company's services is evidence that the pension investment plan is not attractive and does not currently have a significant impact on the structure of agriculture.