Duxton Asset Management and its Investment in Tanzanian

Rice Farming

The Case

A specialist agribusiness investor is evaluating an equity investment in rice farming and processing in Tanzania, Africa. Duxton Asset Management has a business strategy of investing in and operating agricultural assets, many of which are in developing or even frontier markets. The case discusses the complexities of investing in an atypical multi-dimensional asset and allows for an exploration of the fast-growing space of impact investing. This case touches upon several relevant aspects of alternative private equity (PE) strategies:

• Agriculture has been an underinvested asset class for some time. It is currently not well understood by mainstream investors yet is becoming increasingly important in the context of a growing world population facing resource constraints. In addition, direct investments into farmlands require specialized knowledge and expertise.

• Farmland investments are intricately connected to environmental, social and corporate governance (ESG) issues, which the case highlights through references to SRI (socially responsible investment) and Duxton’s approach to ESG. One of Duxton’s strengths lies in its responsible and proactive management of ESG risks.

• The destination here is Tanzania, a frontier market for private capital investments. Local dynamics are promising and rewards can be high, yet many challenges exist. Few

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investors have the ability to spot and manage operating assets in this part of the world. Foreign investors are intrigued but not completely convinced of Africa’s potential to compensate for the risks involved.

The case illustrates an investment in an atypical multidimensional asset class—an agribusiness/farmland investment in frontier markets—and adds the dimension of responsible investing. Readers have the opportunity to examine the potential risks and rewards of a farmland investment with strong ESG impact and potential in an emerging market. The PE investor needs to decide on their next action, as he is faced with a change in circumstances on the financing side. Before making the decision, he needs to explore alternatives and assess the implications on the business and operating strategy.

a) Describe Duxton’s investment strategy within the PE context. Can it be defined as impact investing?

b) What are the highest impact value-creation levers and biggest risks in this deal? In your opinion, does the potential return from the transaction adequately compensate for the risks?

c) What should Duxton do now that their funding partner has unexpectedly backed out with respect to this project?

d) Evaluate Duxton’s new strategy and how it compares to its historical strategy in light of the decision it is facing.