TLG Management Partners in 2020

Dear Investors and Friends,

With 2020 drawing to a close, we thought it would make sense to look back at the development of our business in this unusual year and our outlook for 2021.

We launched TLG Management Partners five years ago to help a few of our clients deal with problematic farmland assets they had inherited from the 2000s commodities super cycle.

An evolving business

What started as a side business turning-around underperforming farmland investments has since become a fully-fledged asset management firm. Today, we cover the entire investment value chain, acquiring agricultural assets which we then restructure and manage over our clients’ investment horizon.

We currently oversee investments representing more than 100,000 ha in Argentina, Brazil, Paraguay and Uruguay. Our activity includes direct investments in ten properties representing 50,000 ha of farmland in Uruguay and Paraguay, which we operate directly with our teams to produce soybean, rice and beef. Our clients are predominantly European family offices, private investment funds and institutions.

We have so far grown organically, initially serving investors we knew personally and, later on, investors referred by our own clients. We have made an effort to grow our assets under management gradually, so that we were able to build a reliable and resilient operation.

Having reached that goal at the end of last year, we decided that we would offer our services more broadly in 2020 in order to expand our client base. But, like everybody else, we did not anticipate that the world would come to a standstill and that travel would remain restricted for most of the year.

We thus took the opportunity to spend this year optimising our management structure and processes; maximising the performance of our properties; developing our own cattle operations in parts of our portfolio previously leased to third-party farmers; and generally, making our business more resilient to exogenous shocks.

Uruguay

We have now completed the turn-around of Villa Lucero, a historical but poorly maintained 9,000 ha farm that we acquired from a distressed seller in a club deal involving French family offices and an insurance company. There, we had to immediately address a wide range of issues stemming from years of neglect, including poor landlord/tenant relationships; overexploitation and erosion of soils; derelict cattle, water and housing infrastructure; and inadequate compliance with regulations. Importantly, we built from scratch a 6,000 head cattle operation, which required developing a thorough pastures rotation system using highly productive forage seeds.

We also started developing an intensive cattle operation at El Tauro and Cabatir, two farms located in the western part of the country, to diversify our client portfolio away from crops and improve its overall risk/return profile. There, we are building an intensive, cutting-edge fattening unit based on lucerne, fescue and white clover pastures to produce and sell high quality beef cattle qualifying for the Hilton quota. Among other benefits, such a development will help remediate the significant soil depletion and erosion that has resulted from years of careless exploitation prior to our acquisition.

Paraguay

In the 30,000 ha we manage in the Paraguayan Chaco, we decided to defer cattle sales to mitigate the impact of reduced seasonal rainfall combined with a significant drop in prices caused by the COVID-19 pandemic. We were able to carry our cattle stock over winter thanks to a rotational grazing system we implemented over summer and extended to previously unused paddocks. We could thus sell our cattle at prices 25% above those offered by slaughterhouses in the last quarter of the campaign. We also carried out a thorough cleaning and seeding of several paddocks covering 1,700 ha, to further improve productivity, and increased the capacity of our water systems to make our cattle operation more resilient.

Outlook for 2021 and beyond

The COVID-19 pandemic brought many challenges to the agriculture industry. But agriculture as an asset class has demonstrated resilience and even grown in the course of this year. We see increasing interest from sophisticated financial investors seeking tangible, inflation hedged investments as a reliable store of value in times of economic turmoil, as well as strategic investors seeking to address their disrupted value chains and to strengthen food security.

Despite the world’s current gloomy outlook, we are very confident about the future of our activity and will continue steadfastly building TLG Management Partners into a leading agriculture asset management company in South America.

We look forward to being in touch.

Francisco Roque de Pinho

Joaquin Labella