Directors of the new Pastoral Dairy Investment (PDI) fund, seeking a total $75 million from investors, told just 10 investors who showed up for the presentation that the buffer in milk price volatility for investors lay in debt-free farm purchases.
Pastoral Dairy Investments (PDI) wants to raise $25 million from small investors in an initial public offering, headed for eventual stock exchange listing, plus a further $50 million from institutional and charitable trusts as "co-investors", the latter being tax-exempt entities.
MyFarm director Andrew Watters said yields of 5.5%-6%, after fees but before tax, were based on Fonterra's milk solids payout being around $6.50.
When asked what the "break-even" point for profitability was, he said because dairy farmers were debt-laden they had to get $6 per kilogram, but PDI could still deliver a 1.9% dividend at $4 per kilogram because debt did not have to be serviced.
The PDI fee structure has been criticised by analysts as complex and higher than necessary.
Mr Watters countered that the fees were on par with paying profits to a 20% sharemilker. The fund fee was only paid on the first 30c required of the $1 per share, with no further fee fees until the 70c balance was called in by PDI.
MyFarm's experience and efficiencies in scale would also assist to reduce costs by up to 3%.
PDI said it was not reliant on charitable trusts, who could be attracted to the PDI fund with their no-tax status, coming on board to underpin the fund, saying PDI would go ahead even with $25 million-$30 million from small investors alone.
Director Neil Craig said while it was "early days", there had been a "surprisingly good response" from the charitable trust sector so far and he hoped a total of $75 million-$100 million could be raised.
The 'average' PDI farm
• To buy, debt-free, about nine, mainly Southland farms for $10 million each.
• Milking herds up to 800 cows on at least 200ha, with potential for up to 20% productivity increases.
• Managed by separate dairy fund operator MyFarm.
• Small investor entry minimum $20,000.
