This website operates by engaging with a range of keywords that help us make sense of the social production of institutional landscapes. Keywords are important empirical terms that are frequently used in everyday language , but that – at a higher level – should always receive critical scrutiny.
It is a hallmark of the financial industry to use opaque language and be shrouded in operational mystery. Things too easily remain a black box since they are considered too technical and the realm of experts. This glossary shall change that and provide short but useful information for a both cultural and etymological analysis of keywords: We do not only have to ask what is represented by them and what social role the phenomena designated by them (or keywords themselves) play, but also where they come from.
If you notice a term within a section of this website that is not listed here and remains unexplained in the text, feel free to contact me so I can continuously complete this website.
 Williams R (1985 ) Keywords. A vocabulary of culture and society. Rev. ed. New York: Oxford University Press.
Inside the finance industry, the surge in agri-investments has led to the proliferation of new investment vehicles, relations, and practices. In finance jargon, the space where agri-focused investment is being discussed and encouraged is called the “AG space”. I will sometimes use this term as well. “Agri-finance” is the term denoting various kinds of interactions between the financial world (asset management, investment vehicles etc) and the agricultural domain – this can include farmland acquisitions, farming technologies, forestry, horticulture and more.
More recent dynamics show the increasing entry of financial investors into the “AG tech” sector, focussing on the technologies used to control and manage production across time and space. This could cause a shift of funds away from risky land-based production to the less risky income and capital gains generated via AG technology investments.
(Ouma 2020: 2, 181f.)
Today, ‘asset’ is a key notion in economics and the world of investment management, describing, “a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit” (Barone 2019 ). Financial assets represent investments in the assets and securities (bonds/ stock/ private equity) of other institutions, but increasingly also of urban and rural real estate, infrastructure, or various forms of “natural capital”.
In a more foundational sense, an asset is a “property that yields an income stream” (Birch 2017 : 468) and is not meant for immediate sale. The process of turning something into an asset is called assetization. It should not be equated with other popular political economy terms such as commodification or marketization. While certain types of assets – especially in their securitized form – can be traded in markets and thus have a quasi-commodity character, the underlying form of value is distinct from a commodity for its income stream generating quality. Assetization should also not be used synonymously with capitalization (Muniesa et al. 2017 ) – a set of specific accounting techniques for capitalizing the assumed future value of an asset in the present.
(Ouma 2020: 21f.)
Modern financial markets are shaped by “two types of intermediaries – institutional investors, such as insurers, mutual and pension funds, and professional asset managers, such as hedge funds, the wealth management arms of large international banks, and giant asset managers like BlackRock or PIMCO” (Braun 2015 : 8). Traditionally, the business model of the asset management industry “is built on investors’ willingness to pay for ‘active’ asset managers to ‘beat the market’ by selecting outperforming stocks and bonds” (ibid.). The idea of asset management is a paradoxical one. On the one hand, it contradicts the idea of efficient markets, because no one would need an asset manager for asset classes such as stocks and bonds, if markets, under the very best circumstances, if it held true that efficient markets always reflected the true value of an asset. On the other hand, the practice of asset management fits perfectly with the idea that in the case of real assets, the true value of an asset can be brought to the fore by active interventions into it. Obviously, as the proliferation of the ‘activist investor’ (e.g., Carl Icahn) shows, investors can also aggressively intervene in publicly listed companies in cases where they command a sizable number of shares, but never with the same depth as private equity companies.
An investor’s or asset manager’s exit from an asset is a key moment in the deal cycle. In agri-finance, this could mean several things, such as rolling assetized farming ventures over into another fund, selling it to another institutional investor or to agrobusiness companies (called trade sales) or making it available to the public through stock listing (called initial public offering: IPO). Nevertheless, a sale to farmers is an option, too, and in some regions, such as Aotearoa New Zealand, this option is a viable one for investors.
(Ouma 2020: 128)
Management fees are a key source of value in the world of money management. In private equity-based investments, the general partners (GPs) collect advisory and management fees from either the portfolio companies or the investors acting as limited partners (LPs). Thus, traditionally GPs had an incentive to keep fees as high, frequent and multiple as possible. In the post-global financial crisis environment, however, the issue of fees, once considered a technicality among investment experts, has moved centre stage to discussions about the future of money management. Fees have become criticized for being a major source of the redistribution of value along investment chains from the investors, including public and private pension funds, to the class of money managers.
In the ‘AG space’, many pioneering funds first deployed the established 2/20 model. This model implies an annual compensation of fund managers in the amount of 2 per cent of the total capital invested, and another 20 per cent of ’carried interest’ from the profits accruing from the sale of the agricultural venture (carried interest is a de facto income, but often taxed at a much lower rate than ‘capital gains’ in most jurisdictions). It quickly turned out, however, that the private equity standard model cannot be smoothly transferred to agriculture since AG investments offer lower returns than conventional private equity. It consequently appeared absurd to many industry players to maintain the same fee level. Thus, it was not surprising that the asset managers interviewed for my research all claimed that their fees were below the standard PE model, with some even priding themselves in their transparent and fair fee structures.
(Ouma 2020: 134)
I study the finance-farming nexus from a ‘financialization’ perspective but combine this with a more practice-centred approach by taking into account concrete practices of institutional landscape-making. Financialization has become an increasingly popular concept among social scientists and even humanities scholars. Almost everything seems to become financialized – economies, households, public services, and even nature itself. Human geographer Manuel Aalbers defines financialization as follows:
“the increasing dominance of financial actors, markets, practices, measurements and narratives, at various scales, resulting in a structural transformation of economies, firms (including financial institutions), states and households” (Aalbers 2015 : 214).
The danger with financialization is that it is often used in rather ahistorical terms, thus sidelining the long history of repeated periods of financial expansion and intensification. Also, it has often been turned into an abstract force sui generis, morphing from explanandum into explanans.
(Ouma 2020: 15ff.)
The commonly used term Financial market conveys that investments take place in an environment of encounters between individual and interdependent market participants, competition and anonymity. This metaphor obfuscates the systemic power, centralization and importance of social relations within the financial system. What is commonly called the ‘global financial market’ actually more closely resembles a global allocation bureaucracy, populated by players such as institutional investors including pension funds and insurance companies. The market metaphor also suggests that financial markets operate like commodity markets. Yet these are ultimately not about bestowing something with exchange value and trading it as a commodity for a return. Even though tradability – often referred to as ‘liquidity’ – is certainly a desirable feature of many financial products, these markets do not operate according to the same logics as commodity or production markets (Knorr-Cetina 2012 ). Rather, financial markets are about speculation and investment and these activities involve claims and commitments exercised over time and oriented to the realization of future income.
(Ouma 2020: 21)
The term institutional investor does not have a common standard definition. One feature often mentioned is that these are “not physical persons’ but ‘are organised as legal entities” (Çelik and Isaksson 2014 : 95–96). These can assume a wide variety of legal forms, from closed-end investment companies to private equity like limited partnerships to sovereign wealth funds. They “may act independently or be part of a larger company group or conglomerate” (ibid.: 96), such as mutual funds, which are often subsidiaries of banks or insurance companies. At times, the term is used synonymously with “intermediary investors”, i.e., an “institution that manages and invests other people’s money” (ibid.: 96), but in some cases institutional investors may be the ultimate asset owners. Often, pension funds are presented as the most prominent type of institutional investor. Institutional investors can be contrasted to retail investors, who are individuals and who can only access certain types of financial products due to their assumed non-professional knowledge of financial markets.
Current textbook definitions of the term investment as the allocation of capital for the purposes of capital maintenance, revenue generation or capital appreciation distinguish it from ‘unproductive’ economic activities. Thus, today the investor appears as someone (a person, a corporate entity) who is neither a speculator (someone who takes high risks in order to achieve high returns), nor a gambler (someone who takes very high risks in order to achieve disproportionately high returns), nor an arbitrageur (someone who exploits price, interest rate or price differences at the same time in different places for the purpose of profit-taking through so-called carry trades), but someone who produces real value. In practice, however, investment strategies, especially those in the financial sector, often follow less clear lines and often combine all or several of the economic activities mentioned here. While in many agri-investments, material output is being produced, we nevertheless need to flag the phenomenon of rentierism: the production and distribution of rents as income derived from the ownership of property, and the claims on income associated with it.
(Ouma 2020: 22f.)
See “Private Equity”
“Patient capital” can play a crucial role in converting farmland into an asset. Although there is no common definition of patient capital, there is broad consensus about its purpose. Patient capital shields non-financial corporations from “the need to react to the short-term vicissitudes of financial and product markets, or to focus on short-term financial gains at the expense of long-term gains” . In other words, patient capital allows incipient agri-investment projects to operate under relative autonomy and without making quick decisions based on short-term financial gains during the early period of the deal cycle. While this focus on long-termism “risks a normative assumption that [patient capital] is always positive” (ibid, 629), it also brings its own on-farm risks, such as the possibility of underperformance, malpractice, or fraud.
In the context of agri-investment projects, particularly those targeting land-based production, development agencies and philanthropic investors are major sources of patient capital because they are often willing to co-fund high-risk, low-return projects on concessional terms. As such, patient capital can also escort investments of impatient capital by private equity investors .
This pivotal role of patient capital is epitomized by recent large-scale land acquisitions in Tanzania. Already since around 2010, social impact investors such as the UK-led AgDevCo advocate for patient capital as a “highly effective means of ‘levering-in’ large amounts of private capital into the sector, thereby kick-starting sustainable agricultural investment” . Although AgDevCo and similar investors operating in Tanzania succeeded in mobilizing substantial patient capital under this premise, ensuing farmland acquisitions were shaped by controversies and even by total failures. Land conflicts with local communities, agro-economic non-performance, and a loss of political support eventually led to several unscheduled divestments and international arbitration cases between investors and the Tanzanian state . The Tanzanian experience highlights thereby that patient capital initially functioned to make otherwise risky investments feasible. Arguably, however, it did so against-all-odds and was often blind to past experiences of failed large-scale schemes in the country . Therefore, the underpinned de-risking logic of patient capital led not only to uninformed and fast-tracked investments, but also left an unruly vacuum of accountability and conflict once global finance hit the harsh realities of farming in Tanzania.
(Gideon Tups 2023)
The most common investment structures used to channel capital into farming and agriculture discussed on this website are private equity (PE) funds, or structures, which incorporate many elements of the private equity model.
A private equity fund is a structure used for investing in the share (equity) of a company. This company could have been listed on the stock market (a public company) or bought from its existing owners (a privately held company) to resell it at a profit. As part of the non-organized capital market (‘non-listed’), these cater for so-called ‘sophisticated’ investors and are thus subjected to less regulation than vehicles serving the organized capital market (‘retail markets’). PE structures are now so widespread as the new owners of companies across different economic sectors that observers have spoken of “private equity ubiquity” (Kelly 2012 : 199) as a peculiar historical moment.
Private equity companies collect money from institutional investors by setting up a special legal arrangement called the limited partnership, in which the original investor assumes the role of the limited partner (LP), and the private equity firm the role of the general partner (GP). The limited partnership is as much an organizational structure for extraction and capture of value as it is a legal structure through which large institutions such as pension funds can delegate investment risks and decision-making responsibility to specialized third parties to live up to their legal responsibility to act in the very best interests of the original asset holders (the so-called ‘fiduciary duty’). At the same time, it allows investors to reap certain tax benefits
(Ouma 2020: 23)
Designates the belief that the value of an asset can be actively nurtured. Associated with this is the idea that value can be ‘unlocked’, which assumes that value is already inherent in an asset, albeit hidden and dormant. Because of this state, it is up to the ingenuity of those managing the assets to bring it to the surface.
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