BNP Paribas will launch an investment company called Agrinvest this month to tap into the increased global demand for biofuels and rising consumption in Asia and emerging Europe.

The closed-ended, Guernsey-listed company will provide initial net asset value capital protection and 130% participation in any positive performance of the DCI Agriculture BNP Paribas Enhanced Index at the end of its six-year life.
The offer price will be 105p per share, with an issue price of 100p and an upfront charge of 5p to cover expenses.

The index, which is comprised of 23 global commodity contracts giving exposure to 13 different soft commodities, provides broadly diversified exposure to the asset class.

BNP believes the commodities market is currently benefiting from positive economic conditions. It has strong demand growth based on a rising world population, rapid economic development and demand for alternative energy sources. Supply constraints due to a lack of land production, historic underinvestment and potential water shortages make the industry attractive on valuation grounds, it said.

Richard Scott, senior investment manager at Iimia Investment Management, said he is impressed with the new company because it manages to mitigate some of the traditional weaknesses of commodities funds.

He said: ‘Many commodity-related investments just buy short-term contracts, but this company will buy those of different maturities. One of the problems with these funds generally is that you lose out when they reach maturity – the problem of the “roll-up yield” – but BNP is doing some value-added work to make sure this is minimised.

‘It is also looking at prices on various exchanges, which is not very common and a good idea as prices vary considerably. This stems from different local market conditions such as harvest, demand and droughts.’

Among the 23 commodities the fund will invest in, its largest weighting will be in soybeans at 17%, followed by corn and wheat, both at 12%, and it will have a 10% weighting in lumber, which is increasingly being used as a portfolio diversifier.