Blue Sky Water Partners, the fund management firm investing into Australian water assets, has hired Michael Blakeney as investment director, taking the team to 15 people from three when it was first established in August 2012.
Blakeney joins from PrimeAg Australia, the listed agriculture investment company, and has experienced investing in a range of agricultural entities including water-based assets. Before PrimeAg he worked at Warakirri Agricultural Trusts, a commodities producer and owner-operator of 75,000 hectares of cropping land across Australia.
Blue Sky Water manages the open-ended Blue Sky Water Fund that is currently A$50 million ($47 million; €34 million) in size and targeting 10 percent to 14 percent returns per annum based on the recommended minimum investment term of five to seven years. There is a management fee of nearly 2 percent of the gross asset value of the fund every year and a performance fee of 17.9 percent every year above an 8 percent performance hurdle, before tax.
The fund acquires water rights across Australian geographies and pays out annual income from selling the water to farmers, miners and consumers and achieving capital growth over the term of the investment. “We recommend that investors commit from five to seven years rather than try and time the market,” said Morison adding that investors can subscribe monthly and redeem quarterly. The Fund is ongoing with no maturity.
The Fund is mostly made up of high net worth individuals and family offices although it has two institutional clients and is currently “deeply engaged” with a number of Australian institutions that are expected to come in at some stage, said Kim Morison, managing director of Blue Sky Partners.
“Part of the reason that we are in talks with them now is because we have been establishing a visible track record,” he told Agri Investor. “It is so unique and no one has really done it before, so investors want to see what we are doing and how it works.”
But several institutions are struggling with where to position water in their portfolios and how to benchmark its performance, he added.
Water is now a freely traded asset in Australia since the Council of Australian Governments signed the National Water Initiative in 2004 establishing the National Water Commission. COAG set out to create a compatible market, regulatory and planned based system to help manage surface and groundwater resources for rural and urban use, according to the NWC website. And it has done a good job; the market is very efficient turning over about A$1.5 billion a year, according to Morison.
“The Australian government encouraged the development of a market when it realised that the most effective way to allocate the scarce resource is through an efficient market, where those getting the most out of it, can get more of it,” he told Agri Investor. “Our water market has evolved now and is quite sophisticated — water rights are freely traded and no longer attached to farmland.”
There are about 400 different types of water right depending on security, liquidity and access priority; some investments give you a share of the air space in a damn, others a certain volume of water per year and the amount you get can depend on where you stand in the priority line. And these will vary from state to state. “It has different tiers like a bond does. Sometimes you might just get 60 percent of your maximum entitlement due to rain, priority and other factors,” said Morison.
Blue Sky has analysed and identified 15 attractive investments so far depending on liquidity and capital growth potential.
The Fund operates a buy-and-hold strategy but will sell an asset if the capital growth potential is taking too long to emerge, for example.
Blue Water started investing in water in 2008 when it had a mandate from a US investment firm to run a portfolio. It started its own Fund in September 2012.
Morison and his team have a long history in commodities trading and agriculture and are keen to take advantage of the attractive supply and demand curve in the sector.
“When looking at the Australian context of how to invest into the agriculture theme and take advantage of the wealth now evident in Asian countries, I kept coming back to the most compelling investment being the opportunity to own the water that will grow the commodities,” said Morison.
“There is plenty of land available in Australia but its value it’s all dependent on whether you have enough water to it rains at the right time. We have a lot of drought and floods in Australia so owning the water rights is the key to investing in the space. Another advantage of what we are doing is the lack of operational risk or the need to have any managers on the ground. Water is the only limit that will determine how big the annual crop is.”