Spun-off from Deutsche Bank in 2009, Duxton Capital, headed by chief executive, Ed Peter and Stephen Duerden, has $870 million in agricultural investments under management. However, the group’s latest fund launch will deviate from its traditional approach to agricultural investment.
Duxton is seeking to raise $99 million by the end of August for a new water entitlements fund, Duxton Water Ltd., prior to its expected listing on the ASX on September 21.
Incorporated in April 2016, Duxton Water Ltd. was developed as a vehicle to give investors the ability to buy, sell, and invest in Australia’s limited water supply. Access to fresh water is a key linchpin issue for Australian agriculture, with 60% of the country’s total water usage allocated to agricultural production.
“The increasing scarcity of water, coupled with the rising demand for it is likely to be a key economic driver underpinning the water market,” states Duxton on its website.
Duxton Water Ltd. will have an initial portfolio of $38 million with returns generated through Water Entitlement leases where the asset is held by the lessor with the lessee paying a fixed annual rent, providing investors with a predictable income that is not correlated to traditional asset classes. This lease structure is predicted to generate a gross initial return on investment of 5.9% according to information distributed to potential investors.
Begun in the 1980s, Australia’s successful and efficient water entitlement market has become an example for other countries and regions that are facing water shortages, reports Bloomberg. Each year a cap is set on the volume of water that safely be used. This water is then divided into entitlements which users can buy, sell, or trade with real-time prices available online. During a drought, almond or grape growers can buy or temporarily trade for water from growers of cotton or rice for example, helping ensure more consistent agricultural production while maintaining farmer’s standard of living.
Duxton is joining existing funds active in Australia’s $30 billion water entitlement market, including Blue Sky Alternative Investments’ water trading fund. Launched in 2013, Blue Sky’s water fund generated returns of 32% and higher in fiscal 2015.
Additionally, the Murray-Darling Basin Balanced Water Fund was launched with a $5 million seed investment from The Nature Conservancy Australia and up to $5 million in debt. Managed by Kilter Rural Investment, the fund raised $27 million last year and is aiming to raise another $75 million from superfunds, high net worth individuals and institutional investors, with all capital deployed within one to four years.
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Lynda Kiernan