April 5, 2016

Launched with a $5 million seed investment from The Nature Conservancy Australia and up to $5 million in debt, the newly formed Murray-Darling Basin Balanced Water Fund raised $27 million last year, but has its sights set on raising another $75 million from superfunds, high net worth individuals and institutional investors, according to The Australian. Once raised, all capital is expected to be deployed within one to four years depending on the amount raised, according to an information memorandum issued by Kilter Rural, the fund’s manager.

Managed by Kilter Rural Investment, the fund was established to invest in water rights within the Southern Murray-Darling Basin with the goal of providing attractive returns to investors, new access to capital for farmers, and provide water to support the restoration of sensitive wetlands, reports ABC. To do this, the fund plans to acquire 40 gigaliters of water, or about 10% of the volume of Sydney Harbor, through permanent water allocations from irrigators, which will then be leased back to the irrigators on a long term basis. Excess water will then be donated back to the environment based on supply and demand dynamics. If the water supply is high and agricultural demand is soft, more water will be donated to restore wetlands, while lower volumes will be donated at times of high demand.

“This is the first time in the world where a water fund has been established to achieve the multiple objectives of providing secure water for agriculture, returns to investors and wetland restoration at scale. We are fortunate we have the largest and best-regulated water market in the world in Australia that allows us to do this,” Rich Gilmore, The Nature Conservancy Australian country director told The Australian.

Australia has possibly the most comprehensive water market in the world. Beginning in 2007 investors have been allowed to buy and sell water rights in the Murray Darling Basin without needing to own land. The government decides the volume of water that may be removed from the basin based on rainfall levels, and water in the basin is allocated to farmers who may use it for irrigation or sell it. This market structure and the low correlation of water to other assets has attracted institutional investors to water investment as a means to diversify and mitigate risk. Backers of the Murray-Darling Basin Balanced Water Fund now include the National Australia Bank, the Besen family, the Schwartz family, and Charles Carnegie, while other funds and fund managers including Blue Sky Alternative Investments, California-based Summit Global, VicSuper, and Aware Water to invest in Australia’s water market.

Returns for investors will be determined by the appreciation of the fund’s water entitlements portfolio as well as the funds gained from the lease of entitlements not allocated for environmental purposes back to farmers, and upon reaching its target corpus of $100 million, equity returns for the fund are expected to be between 5% and 8% per year before taxes.

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GAI News explored Australian water policy as it compares to water policy and management in California in a 2015 article. Read more here.