WATCH: Blue Sky MD: ‘Trust our LPs, not the market’

Blue Sky Alternative Investments was one of the darlings of the ASX after it pioneered water investment in Australia, with its share price performing well and the company consistently providing seemingly attractive returns for investors across a range of asset classes.

But a critical report published by US-based short-seller Glaucus in March brought Blue Sky’s run to a halt. Within weeks the share price had collapsed from A$10.40 ($7.6; €6.6) to below A$2, chief executive Rob Shand had resigned, and an extensive internal review was announced – highlighting some investments in its private real estate and private equity divisions as problematic.

Kim Morison, head of the company’s agricultural and water investments, was then tasked with stepping up to the role of interim managing director to steady the ship and reassure investors.

The company has been under attack by the Australian media and others ever since, with questions raised over its water fund.

This week, Blue Sky issued a robust defence of its water fund to the ASX in response to Australian media speculation. That announcement stated that, as of May 31, 2018, the fund’s water entitlement holdings were valued at A$258 million. Collectively across all its portfolios, Blue Sky said it manages a portfolio of water entitlements deployed in 29 separate trading regions, with a combined market value of A$500 million.

On the fund’s performance and returns, it said in the statement: “Blue Sky categorically rejects any suggestion that its activities in Australia’s water markets … are illegitimate, lack due process and governance, or are inconsistent with principles of the National Water Initiative to promote markets to allow water to trade to its highest and best use.

“Returns derived from the fund are the result of movement in underlying prices for entitlements in well-traded open markets and from the water allocation sales and leasing activities of Blue Sky Water Partners, as manager of the fund. Redemptions are funded through cash reserves, earnings in the fund, existing and new capital commitments, and the sale of underlying assets (if needed), as is the case with any open-ended investment fund.”

BSWP elected to temporarily close the open-ended fund to new investors in November 2017, mainly due to significant unfulfilled institutional demand from existing investors – and this remains the case.

So how has the recent situation affected Blue Sky’s ability to do business and what impact is it likely to have for the future?

Watch our interview to find out.