Frequently asked questions
What is farmland investing?
Farmland investing is exactly what it sounds like – a direct investment in land used for agricultural production. Because its end result is essential to sustaining human life and meeting certain social needs, farmland generally has an underlying value that does not fluctuate in response to market forces the way stocks and bonds do. Consequently, it can potentially be a source of stable investment returns.
What makes farmland investing so attractive?
Farmland has attracted significant investor interest recently because of its distinctive investment characteristics and ongoing price appreciation. A key resource in the agricultural production chain, farmland is also – like oil and other commodities – a tangible, finite resource. Indeed, the global supply of arable land is shrinking as worldwide demand for food, stock feed and biofuels increases.
How does Fquare work?
Fquare launches crowd defined maturity funds on its web-based platform; the capital raised through these funds are used to purchase farmland. Each parcel of farmland is managed under a separate LLC, and leased out to area farmers for cash rent, annually. The performance of these funds is uniquely tied to the performance of the assets owned by each fund, farmland. Each fund may own 1 or more parcels of farmland. Investors can screen agricultural fund opportunities, sign legal documents with e-signature, and make payments on the Fquare website, with ease and speed.
What is crowd defined maturity funds?
Each year, a 51% shareholder majority will determine if a fund will continue in operation another year or if the fund’s assets will be sold. Shareholders will submit their votes electronically each year.
Example: Should XYZ Fund continue in operation another year? Yes or No
56% Votes No
44% Votes Yes
What are the main benefits of farmland investments?
Investments in farmland provide attractive total returns. Between 1970 and 2009, agricultural land values, as measured by the USDA’s ERS database, have outperformed both domestic stocks and bonds on an annualized basis, returning an annual average of 10.25% vs. 6.24% for the S&P 500 and 7.3% for 10-year Treasuries. We also believe that spreading farmland investments across the world—in regions with different climates, crops and economic influences—can further reduce portfolio risk. Finally, farmland prices have generally risen faster than the rate of inflation. Between 1970 and 2009, the same period covered by the USDA data, the U.S. Consumer Price Index rose an average of 4.36%. As a result, we believe that farmland investing offers a certain degree of inflation protection.
How do farmland investments differ from investments in agricultural commodities?
In the past, investors gained exposure to the farmland asset class through the commodity futures market. Agricultural commodities futures are easy to buy and sell, but their prices can fluctuate dramatically in response to changing market sentiment. Investors participate only in the appreciation of the commodity – soybeans, for instance – in which they invested. A direct investment in farmland, in contrast, is illiquid and less volatile. Farmland investments perform based on the value of the land and crops.
What are some factors to consider in farmland investing?
Agricultural investing in the U.S. and other developed nations offers all the benefits of the asset class – good return potential and inflation protection. Global farmland ownership creates further diversification opportunities as well. Many developing nations are experiencing strong economic growth and their farmland productivity is likely to increase. Brazil, for example, is attractive because its climate can support two annual harvests for many crops that typically yield just one harvest per year in the U.S. and much of the rest of the world. Furthermore, because Brazil has a lot of arable land and an economy that lacks infrastructure, its land prices are typically cheaper than those in the U.S.
A portfolio can also be diversified among different types of agricultural investments, each with distinctive risk and return characteristics. Row crops, such as corn, soybeans and wheat, are planted and harvested annually. These crops tend to produce more stable income returns over time because planting decisions are made annually. A number of row crops are also used in the production of alternative fuels. Permanent crops, such as wine grapes, nuts, citrus, apples and cranberries, take three to seven years to mature, so there is a lag between investment and the realization of returns. Investors can also look beyond farmland to agriculturally related companies and technologies that support the production and distribution of food, including alternative fuel producers and distributors, grain storage facilities and water treatment companies.
What are some of the current issues affecting farmland prices?
A number of factors have combined to fuel farmland price appreciation and income, including a growing world population, demographic trends, changing dietary habits and a shrinking supply of arable land.
The world’s population continues to expand by 25 million people per year, according to the United Nations. The Global Harvest Initiative 2011 GAP Report estimates that to meet global demand, agricultural producers worldwide will have to nearly double their output by 2050. Meanwhile, as the people of the developing world become more prosperous, they are consuming more meat and are buying corn and grain to feed their livestock. At the same time, the increased use of alternative fuels has enhanced farmland values. Corn and sugarcane are generally used for ethanol production, while soybeans and canola are used to manufacture biodiesel. Furthermore, regions with secure, sustainable water resources, including rain-fed and irrigation resources, are becoming leading agricultural producers. In fact, we believe that in certain regions the value of water assets attached to farmland could overtake the value of the farmland itself.
This environment contributes to strong profitability on the farm. According to the U.S. Department of Agriculture, farm income rose to a record $98 billion in 2011. Although agriculture income is influenced by weather patterns and commodity prices, farmers are managing their profitability better than in years past. For instance, farmers are focused on land purchases, thus increasing the size of their farms. In doing so, they have reduced average capital expenditures, boosted productivity, and improved inventory management practices. They have accomplished this and still managed to reduce average debt levels on the farm to about 10% at the end of 2011, as opposed to a historical average of about 20%. As a result, today’s farmers are well positioned for ongoing profitability even in the face of typical changes in weather patterns and economic cycles.
What is Fquare philosophy on farmland investing?
Fquare takes an opportunity-driven, global approach to agricultural investing. In our opinion, the best way to capitalize effectively on this asset class is through direct ownership of farmland properties and through diversification across countries, crop type and operating strategy. In every acquisition, our agricultural investment team considers farm-specific investment criteria. These factors take into account regional and micro-climate factors, including weather variability and soil types; the strength of local infrastructure and tenant markets; water availability and sustainability; crop returns; environmental and social impacts; the potential for future operational growth; and capital gains. Our investment decision-making is also based on crop type. Row crops generally exhibit stable income and capital return, while permanent crops offer higher income, but also higher risk. As a result, we focus on row-crop farmland and make select, opportunistic investments in permanent-crop farmland. To ensure sustainability, we place a strong emphasis on environmental stewardship and seek investments in line with this philosophy. Notwithstanding this process, Fquare does not recommend agricultural investment opportunities as being suitable for any specific Fquare member. There are many risks and merits inherent to investing in any of our listed funds, which you must carefully evaluate with your advisors before you decide to invest.
What are the benefits of using Fquare?
Fquare makes it easy for investors to invest in agricultural investment opportunities: We provide access to otherwise difficult to obtain agricultural investment opportunities via farming CO-OPS, referrals, and partners. We enable investment with dramatically smaller check sizes than what is typical for agricultural investors (typically 10-20x smaller) allowing investors to make a broader range of investments and diversify holdings. We allow investing with ease, providing the first end-to-end online platform for agricultural investing including screening, payments, and legal document handling all within one transaction. We distribute an annual lump-sum divided payment to investors. Fquare does not charge management fees.
Farmland is a relatively new investment asset class that is not widely understood. Many deals are not publicized, meaning that they take place “off market.” So a good reputation and local market knowledge are vitally important.
Who can invest in Fquare?
Accredited investors as defined by the SEC can invest in crowd defined maturity funds. All potential investors will need to complete an investor qualification questionnaire to complete sign up, before any investment request is accepted.
How are legal documents handled on Fquare?
We do everything possible to make the investment process seamless – that includes how we handle legal documents. After you have carefully reviewed them, all legal documents can be signed electronically via our web site. Again, no investment will be completed until the legal documentation is fully accepted, funds are received, and we provide you with the completed counterpart signature pages.
When I invest on Fquare, what do I own?
When you invest in a crowd defined maturity fund, you are buying an ownership stake in an investment fund which may own 1 or more parcels of farmland.
What are the fees for using Fquare?
There are currently no annual membership fees for investing via crowd defined maturity funds, nor do Fquare funds charge any commission, management fees or other transaction-based compensation. Fquare will receive compensation equal to a portion of the increase in NAV, if any, of the funds determined upon a liquidity event (i.e., a carried interest), the amount of which may vary for different funds but is expected to be equal to twenty percent (20%) for most funds. Crowd defined maturity funds have an expense ratio of 0.40%. Neither Fquare Inc. or any of its employees receive any compensation from expense fees. Some expense fees are front-loaded intended to cover the cost of the investment. Other expense fees are deducted from the monthly dividends paid to investors, these fees are intended to operate the fund to maturity without the need for further capital from investors. Any expense fees that are not utilized for expenses are returned to investors.
How does Fquare make money?
Neither Fquare Inc. nor any of its employees receive compensation from expense fees or any transaction-based fees. Fquare will charge a performance based carried interest for most funds, which are expected to provide returns over time. Fquare will operate a trading platform for agricultural investments to provide ongoing private market liquidity to our investors and members at no cost. We may also participate in the investments, which can achieve returns for us along with other investors.
When am I able to get my investment back?
Figure funds maturity dates are set by the crowd annually. If you need your investment back you have four choices:
Accept an unsolicited buyout offer from an existing shareholder
Sell your shares on the Fquare Secondary Market to existing shareholders (Comm. free)
Each year, Fquare offers to buyback up to 3.5% of outstanding shares, accept the offer
Vote with other investors to cease the operations of the fund, if 51% of shareholders vote the same way you do, the fund’s assets will be sold immediately and investors will receive the net asset value (NAV) of the fund at maturity.
How does the investment process work?
After you become a member by signing in and confirming you are an accredited investor, you will be allowed to begin investing in a crowd defined maturity fund. 1 or 2 funds may be launched onto the platform monthly, if you wish to participate in a fund, you would need to credit your Fquare account for the amount you wish to invest. Your Fquare account balance will not be charged unless the fund successfully reaches its target amount and the investment is closed. Only when a fund closes and your payment and legal documents are received, reviewed and processed successfully, will you become an interest holder in the fund which will hold interests in row crop farmland. Remember that we are not providing any recommendation as to whether or not you should invest in any particular fund.
What are the tax implications of an investment in Fquare?
Fquare cannot provide individual tax or legal advice. We encourage you to talk with your accountant and legal counsel.
What effects the share price?
The NAV of the assets owned by the fund, including the profits (cash rent) generated by the assets. Share repurchases can also effect the share price.