Kilter Rural to launch water fund – exclusive

Kilter Rural Investment, an Australian water and agriculture investment firm, is launching a water investment fund next month.

The Australian Water Fund is targeting A$300 million ($258 million; €206 million) and expects to close for the first time on A$100 million by July next year, according to Cullen Gunn, chief executive of Kilter Rural.

Kilter Rural has been investing and managing water and irrigated farmland assets since 2005, when it won a A$175 million separate account mandate for the A$13 billion industry superannuation fund VicSuper. Of this mandate around A$110 million is invested in water, according to Gunn.

The firm was restricted by an exclusivity arrangement with VicSuper until it obtained an Australian Financial Services License enabling it to establish wholesale funds.

Kilter Rural will target a similar investor base for the fund although probably driven by more overseas interest.

“The focus of the new fund will be institutional investors, with a long-term outlook, seeking uncorrelated, inflation-protected total returns with stable yields,” said Gunn. The firm also believes the fund will be suitable for LPs looking to increase their responsible impact investments. “Water is irreplaceable for agricultural production and in supporting Australia’s regional communities.”

“I think interest is growing but the local track record for institutional investment in agri has been poor with some spectacular blow ups [like in timber managed investment schemes],” he added.

The firm has also co-invested with some high net worth investors in the past who could provide some demand. These co-investments were in the form of a small water fund which employs a slightly higher risk-return profile to the Australia Water Fund and currently owns 60 billion gallons of water, Gunn told Agri Investor.

“Kilter Rural’s new Australian Water Fund targets institutions with a low to moderate risk/return profile and long term investment horizon,” he said.

The firm will begin charging management fees when returns reach 8 percent.

The firm has a total of A$150 million assets under management, A$110 million in water and A$40 million in irrigated farmland. A$25 million is yet to be deployed under VicSuper’s existing mandate.