Land grab investors include both public bodies - governments who work with and support private business, sovereign funds – and private entities such as multinationals, banks and pension funds.
The rapid spread of land grabbing has been assisted by the ambiguous role of the World Bank, which on the one hand expresses its concern regarding the situation and on the other hand backs foreign public and private investors, and assists the ‘hosting’ governments to modify their legislation and the political situation to facilitate the transfer of vast holdings of land.
It is also due to the shortsightedness of governments and, at times, to corruption, that land is being yielded so easily.
The farmers living on the land subject to these negotiations are nearly always in a position of great vulnerability. Above all, because across vast areas of the world, particularly among indigenous groups, access to agricultural land is based upon traditional practices and customs that usually aren’t written down or recognized by national laws and practices. In the rarer cases when farmers have a formal property title, negotiations and dealings are extremely unbalanced.
Who are the land grabbers?
A hedge fund is an investment fund aimed at generating very high returns through aggressive management and high-risk investments. Acting on a domestic or global level, these funds are very flexible in using various investment strategies like leveraged buyout, short selling or derivative positions. Hedge funds are often open to a limited number of investors and require a very large initial minimum investment, which made them known as “funds for the über-rich”.
These funds tend to be governed by scant regulations, which led some governments to ban practices used by hedge funds.*1 As private entities they are not obliged to disclose their activities to third parties, thus limiting transparency and further complicating effective regulation. Nevertheless, especially offshore locations like the British Virgin Islands or Cayman Islands seek to establish conditions for hedge funds by creating advantageous tax regulations and services. Nonetheless, hedge funds carry more risk as managers speculate on high returns.
Generally, a pension fund is an asset pool run by an employer or an intermediary to provide retirement income for employees. Employers and employees both contribute to the fund with the aim to generate long-term stable growth. In 2008, Morgan Stanley estimated that pension funds manage over US$ 20 trillion in assets making them it the largest institutional investors on the financial market. Pension funds can be either public like the Japanese Government Pension Investment Fund with US$ 1,370 billion in assets or private such as the Canadian Ontario Teachers’ Pension Plan managing C$ 96.4 billion in 2009. This enormous financial power makes them very important shareholders of numerous companies.
Sovereign Wealth Funds:
The American Institute for Sovereign Wealth Funds (SWFs) describes SWFs as “state-owned investment fund(s) composed of financial assets such as stocks, bonds, real estate, or other financial instruments”. Their funding derives from state savings and central bank reserves obtained by trade and budgetary surpluses, which makes them less profit driven. Nations depending on raw material exports may choose to create SWFs in order to hedge against volatile commodity prices. Governments may also simply decide not to direct the money to immediate consumption but to create savings for the future to be able to respond to unforeseen events.
However, SWFs can also be used as a powerful tool to gain control over strategically-important industries of other nation states as happened in January 2008, when SWFs from Kuwait, South Korea and Singapore accounted for a major part of the US$ 21 billion necessary to save Citigroup and Merrill Lynch from bankruptcy.*2 Since then, the funds, especially those from the Middle East and Asia, have been playing a big role in keeping the Western financial system alive.
Private Equity Funds:
Private Equity (PE) Funds are not typically acting on the public stock market, they are instead limited partnerships with a fixed term (often 5-10 years). PE firms usually raise and manage a number of funds that make investments in companies, called “portfolio companies”. A fund consists of a general partner (the PE firm) that raises capital from potent institutional investors (pension funds, insurance companies, commercial banks, hedge funds) and a series of limited partners, usually high net worth individuals.
PE funds often buy under-valued companies from the stock market and turn them into private companies. The ultimate goals is to generate returns (known as internal rate of return) from the investments made by selling the company to a larger company (trade sale) or, increasingly, to another PE fund (secondary sale).
*1 - Kollewe J. “Naked short-selling: German minister‚ confident of EU-wide ban”, The Guardian. June 25, 2010
*2 - “The invasion of the sovereign-wealth funds” The Economist, January 17, 2008