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New fund leverages private capital for rural America

CoBank provides anchor investment of $10 billion to U.S. rural Infrastructure Opportunity Fund.

The U.S. Department of Agriculture currently participates in between $20 to $30 billion a year in loan activities. Now the agency has set out to leverage its knowledge and resources by catalyzing private investment in infrastructure projects in rural America.

A newly created U.S. Rural Infrastructure Opportunity Fund offers a way to leverage resources more effectively by enhancing access to capital for rural infrastructure projects and speeding up the process of rural infrastructure improvements, according to an announcement out of meetings of the White House Rural Council’s inaugural Rural Opportunity Investment Conference (ROI),.

CoBank, a national cooperative bank serving rural America and a member of the Farm Credit System, is the fund's anchor investor, committing $10 billion to get the fund off the ground. Capitol Peak Asset Management will manage the new fund and work to recruit more investors to add to CoBank’s initial commitment.

Secretary of Agriculture Tom Vilsack said the approach is a new way to do business and educating the private sector about lending opportunities in rural America. Acting as a catalyst, USDA, CoBank and any others who want to join can work together to leverage each other’s resources. “We can do more projects and create more opportunities as a result,” Vilsack said.

CoBank chief executive officer Robert Engel shared USDA has finite resources and an understandable backlog of projects across many of the sectors. On the other hand CoBank is a key source of capital for rural infrastructure and already operates in the 50 states.

Engel explained that when private investors look for projects to fund, they don’t see it in rural America. This new fund will allow a wide variety of new participants, including pension funds, endowments, foundations, and other institutional investors that have not traditionally had access to these markets to invest in rural development.

Engel said it will help “build that bridge” to create a match with those who do lend in rural America.

The fund is immediately open for business and more investors can now add to the initial $10 billion in available capital. USDA and other agencies will help to identify rural projects in need of financing through the new fund and through other such private sources and public-private partnerships.

The White House said that target investments will include rural community facilities (especially health care and educational facilities), rural water and wastewater systems, rural energy projects, rural broadband expansion efforts, local and regional food systems, and other rural infrastructure.

Vilsack said water and waste water projects is one example that they agency wants to provide more funds but doesn’t have the capacity to do so. The fund could take several projects and directly finance them or bundle a series of projects together.

Engel laid out another example whether USDA may put down 10% of the loan, CoBank picks up another 5% and then other market players could more easily view the loan as a safe asset and which offers a desired diversity to their portfolio.

In the end, Engel said the goal is “building a network that reaches and expands our reach and resources more effectively.” He added the need is out there as well as a profit opportunity as long as investors are made aware of it.

Vilsack said with CoBank’s leadership he hopes to set the bar and challenge others who are similarly situated to respond as well by either adding to this fund or starting their own.

The announcement builds on recent announcements from the Administration including a new $150 rural equity fund to facilitate private equity investments in agriculture-related businesses. Advantage Capital Agribusiness Partners, which will manage the new fund, and nine Farm Credit institution partners, have pledged to invest the over $150 million.

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