Duxton Asset Management is launching an IPO targeting A$99 million ($77 million; €69 million) for a fund to invest in Australian water entitlements.
The offering, opening on 11 August and closing on 31 August, will have a minimum subscription of A$22 million, and a maximum of A$149.6 million with oversubscriptions.
The firm plans to list Duxton Water Limited on the Australian Stock Exchange (ASX) with a portfolio of A$38 million in water entitlements. These contracts are expected to be settled by the end of the offer period, with initial annual yields ranging from 5.5 percent to 6 percent.
The company will generate returns primarily through leasing out water entitlements, which the firm describes as a predictable coupon-like return. The company will also draw revenue through the sale of water allocations and the sale of permanent water entitlements, which offers the potential for capital appreciation return.
Australia has a robust market for water entitlements, which can be bought and sold independently of land rights, creating what outside observers have described as an efficient and transparent conduit for allocating scarce water resources, particularly in the drought-prone Murray Darling Basin.
A prospectus for the offering touts projected scarcity of fresh water for Australian agricultural production, and a lack of correlation with other traditional asset classes as positive indicators for Duxton Water’s investment strategy.
The company’s board will be chaired by Ed Peter, former head of Deutsche Asset Management Asia Pacific, Midldle East and North Africa.
The offering opens up a market that has not typically been accessible to retail investors. Private funds have long been involved in Australia’s water rights market, including Blue Sky Alternatives, which launched Blue Sky Water Fund in 2012.
Duxton Asset Management manages or advises $600 million in assets in Latin America, Australia, the Pacific and Africa, of which roughly $460 million are in the agriculture sector, according to the company’s website. The company acts as the delegated manager of Deutsche Asset Management’s DWS Vietnam Fund and DWS Global Agricultural Land & Opportunities Fund.