By Gerelyn Terzo

 

Brisbane, Australia-based specialized alternative asset manager Blue Sky Water Partners has announced the forthcoming launch of a new agriculture-focused portfolio. Michael Blakeney, Investment Director at Blue Sky Water Partners, at the seventh annual Global AgInvesting conference in New York revealed the soft launch of the Blue Sky Strategic Australian Agriculture Fund.

 

Blue Sky Water Partners, a subsidiary of Blue Sky Alternative Investments, is targeting $300 million for the fund to be raised over 12 months. The firm is in the process of canvasing U.S. institutional investors for their appetite for the fund, the response to which has been “very encouraging,” according to Blakeney, adding that it’s still “early days.”

 

According to Blakeney, by investing in Aussie agriculture, investors gain exposure to the global agri sector thematic. Australia over the past 12 months has reached free trade agreements with three Asian countries: Japan, China and Korea, and while not all of the new fund’s investments will be export oriented, demand for animal protein and food security originating from Asia will influence capital allocations.

 

The alternative asset manager started a road show in Australia, whose institutional interest is paramount to the fund launch. “They  like the fact that it’s uncorrelated, diversified exposure to agriculture without it having to be a farm,” Blakeney said, adding that Aussie pensions have struggled with the volatility of some agriculture investments, which has ignited caution among newer entrants to the space.

 

The Blue Sky Strategic Australian Agriculture Fund, an Aussie-focused agribusiness offering, adopts a three-pronged strategy surrounding Australian water entitlements, agri infrastructure and agribusiness expansion capital. Blue Sky is targeting 12 percent to 15 percent IRR (net of fees) including both capital growth and yield, the latter of which Aussie locals refer to as cash, over the life of the fund, which is projected at 10 years.

 

Water assets are expected to deliver attractive capital growth plus yield, while infrastructure investments will be made on a leaseback system for yield. Expansion capital returns, Blakeney said, are tied to the exit strategy.

 

The out of box approach to this fund reflects Blue Sky’s other investments, which Blakeney explains have served as a case study for the new fund. “By investing across those three strategies and moving away from straight farmland investment, you’re getting far more efficient exposure to the ag sector,” he said. “That’s really what Blue Sky is about.  We look for the alternative, interesting ways to invest and where there’s been a margin there’s more opportunity for us to use our knowledge and experience in the sector to provide a better return.”

 

While previous Blue Sky investments have served as a litmus test for the forthcoming launch, the only way for investors to gain access to Blue Sky’s unique water strategy is by investing in the Blue Sky Strategic Australian Agriculture Fund.

 

The water rights opportunity is the cornerstone of the new fund strategy and was in part born out of years of two-way discussions between Blue Sky and U.S. institutional investors. The opportunity became possible following several years of major drought down under, after which time Australia moved to separate water rights from land rights including titles, registers and value. Blakeney explained that by assigning a value to the liquid commodity, the economic uses with the highest return take precedence.

 

“We argue that by having ownership of water rights you don’t have to take a view of which asset or commodity to own. By owning the water, it flows to the highest and best use. So you’ve got the potential to get a competitive return with lower volatility in comparison to other agri investments,” he noted.

 

Blue Sky is no stranger to investing in agriculture infrastructure, the second rung of the new fund’s investment thesis, evidenced by the firm’s previous investment in a water distribution network comprised of pipes, pumps and storage dams that distributes water to a high value export horticultural region in South Australia.

 

The third strategy, expansion capital, is how investors will gain exposure to farmland and it’s an area Blue Sky is active in, evidenced by an existing investment in a large scale irrigation property centered on land-use change and expansion. “We’re taking an assets’ that 3,000 hectares of irrigated rice country and we’re turning that into an asset that will be 6,000 hectares of irrigated row crop country. We get margin expansion, and we get a land use change uplift as well,” said Blakeney.

 

Blue Sky is in the process of finalizing the details of the new offering and expects final documentation to be achieved in the coming weeks.

 

Blue Sky’s Michael Blakeney discusses the positioning of this new fund with GAI News – LISTEN HERE