Driven by the growing global appetite for fish, the shares of conventional salmon farmers in 2018 were able to increase by 40 percent in some cases. However, conventional farming in the sea has downsides, for fish and consumers as well as for investors. Volkswohl Bund group in Dortmund is among the first to participate in a project for land-based salmon farming. In an interview, CEO Axel-Rainer Hoffmann explains what he expects of it.
Member of the Board of the Volkswohl Bund.
(Photo: Olaf Hermann)
Mr Hoffmann, why is Volkswohl Bund investing in salmon?
As you know, strategic asset allocations have changed dramatically in the past 15 years. We are all looking for alternative investments. The investment in land-based salmon farming helps us to stabilize the return on our portfolio and further diversify our investment portfolio. We have invested a mid-double-digit million amount. As with our investments in renewable energies and real estate financing, we are also looking at having the First Mover Advantage of this investment. Currently the interest in alternatives is very high. It has become more challenging to find attractive risk-return profiles.
The format is a private equity fund. Salmon is actually more of an alternative alternative, isn’t it?
Today it is an alternative alternative. However, I strongly expect that land-based salmon farming will be part of the classic alternative investment category in a few years’ time. However, at that point the risk-return profile could already be unattractive for an insurance investor.
Does the risk-return profile justify a capital backing of 49 percent?
Our target return for this investment is in the double-digit percentage range. However, cash flows are more attractive than traditional private equity.
While Private Equity can take five to six years to complete the J-Curve, salmon from egg to super market only takes about two years. We also think that the consumer and the retailer may be willing to pay more for higher quality and longer freshness.
How does one come up with the idea in Dortmund to breed salmon on land?
The idea came from our network. Then we performed first due diligence and examined the business case, new product process, risk management and Solvency II. We are very risk-conscious. It took a several months from idea to investment.
Is investing in salmon farming also an opportunity for personnel development?
Absolutely. Traditionally, we had one fixed income team, one for real estate and one for equities. Then new asset classes appeared in the portfolio, which have overlaps with the existing assets. Therefore, the teams need to be better integrated. As a result, expertise grows, on the basis of which new and interesting investments can be considered. The salmon project was handled by our private equity team. The business case itself is not overly complex and the recirculating aquaculture system is a proven technology. Thus, we were able cover this investment internally without additional staff, working together with the fund manager 8F. Fortunately, my team is very open towards new investment ideas.
Wouldn’t, nevertheless, the purchase of Norwegian salmon stocks have been a more efficient investment?
Until now these listed salmon farmers have seen very good returns. However, we believe that farming in cages in the sea poses more risks than farming on land. Considering the antibiotics, microplastics and mercury in food as well as large carbon footprint, public opinion might turn against sea-farmed salmon. Perhaps we are at a tipping point at which consumers are becoming aware of the risks of sea-based salmon farming. It is very attractive for the retailers and wholesalers to be able to offer salmon with a longer shelf life and not have to throw it out too quickly due to the approaching expiration date.
Is land-based salmon farming also attractive for sustainable reasons?
You can define it as an impact investment – even though we are not a classic impact investor. Our primary focus is the risk-return profile and the fit for our liabilities. However, the sustainability aspect undoubtedly makes this investment even more attractive.
Most important question: How does the salmon taste?
Very good! We also had tastings and reviews from buyers and sushi restaurant operators, which were consistently very positive.
Eight out of 17 UN Sustainable Development Goals (SDGs)
Onshore salmon along with its recirculating aquaculture system technology is not least attractive from a sustainable point of view. 8F is highlighting eight of the 17 SDGs for its venture: “Living under water”, “Climate change measures”, “Health and well-being”, “No hunger”, “Sustainable consumption and production”, “Clean water and Sanitation “,” Industry, Innovation and Infrastructure “and” Dignity, Work and Economic Growth “. The latter is due to the fact that a 10,000-ton facility offers around 130 jobs for biologists, engineers and unskilled workers. It is also sustainable because 8F can produce its own electricity with solar panels on the flat roof. In addition, fish excrement can be sold as fertilizer.