How NOT To Manage A Coffee Farm: Kona Hills Farm Shows How Private Investments Can Go Wrong – CoffeeTalk

A Michigan pension fund’s attempt to cultivate a large coffee farm in Hawaii resulted in significant financial losses, illegal housing and catastrophic mismanagement. The Municipal Employees’ Retirement System of Michigan (MERS), a $16 billion retirement fund based in Lansing, abandoned the Kona Hills coffee farm in the spring after nine years and $86 million in losses.

In 2015, MERS hired Verdantf, a Zurich-based firm, to manage $150 million. Verdantf’s founders were former employees of one of the pension’s private-equity managers. MERS committed $50 million to the Kona Hills farm in 2016, aiming to plant approximately 1,000 acres. Domain Capital Group, an Atlanta-based private-equity firm, managed the investment. The concept for the coffee farm originated with MERS, according to a Domain spokesman.

By 2023, MERS had lost confidence in the coffee farm and renewable fuels investments. The pension fund severed ties with Verdantf and Domain, transferring the assets to Ospraie Management. In September, MERS sued Verdantf and its founders, alleging that they concealed risks and used MERS’ money to salvage personal investments. A lawyer for Verdantf disputed the allegations, stating that MERS invested an additional $136 million with Verdantf in other projects and earned approximately 10% annually.

Ospraie discovered issues at the coffee farm, including citations for drainage problems, illegal employee housing, and unauthorized septic tanks. AgAmerica, the farm’s lender, initiated foreclosure proceedings in June and is suing MERS and Domain for fraud, alleging they failed to disclose the violations when applying for a loan in 2022. Both MERS and Domain deny the allegations. A new team is currently managing the coffee farm, addressing the drainage problems and other issues. The illegal housing has been shut down, and the crop has been limited to 400 acres. The Kona Hills farm is currently in foreclosure and seeking a new owner.

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