By Dania Zinurova
WAM Alternative Assets (ASX: WMA) provides retail investors with the opportunity to access a wide range of alternative assets through a diversified portfolio. These assets include real assets, private equity, real estate, infrastructure, and private debt.
Australia’s agriculture and irrigation sector offers a distinctive investment opportunity within the realm of alternative assets. WAM Alternative Assets invested with Argyle Capital Partners, an investment partner that invests in Australian water entitlements and agricultural assets.
The Argyle Water Fund invests in the ownership and on-going management of a diverse portfolio of perpetual water rights across a range of river systems and aquifers. Water rights represent a perpetual title to receive water every year from these water reserves, with these annual allotments referred to as water allocations.
The economics of scarcity
The Argyle Water Fund can generate returns for investors in a variety of ways. Water rights are valued on the basis of their long-term access to water, and as such the Fund benefits from the long-term capital growth driven by scarcity of those resources and growing demand. The Fund is also able to generate income by selling or leasing water allocations to farmers. The spot price of annual water allocations changes depending on current and anticipated weather conditions.
For instance, record rainfall and oversupply of water into the southern Murray Darling Basin saw water allocation prices fall to near zero by the end of the 2022/23 water year. More recently, water allocation prices have reached $175 per mega-litre due to increasing concerns of farmers about a prolonged El Niño dry period for the 2023/24 water year. In the past, water prices have previously risen to $1000 per mega-litre in the peak of drought years.
The farm gate
Argyle Capital Partners also invests in agricultural assets and businesses with the aim to optimise farm productivity and generate sustainable returns.
Growing crops such as almond or citrus requires four or five years of patient capital before the trees mature to harvest and cash flows can be generated. More broadly, over the last 10 years Australian farmland values have increased by 195%, even before accounting for the income generated from the land.
Real assets like water rights and agriculture have unique characteristics that add value to a diversified portfolio through providing further diversification benefits, inflation protection and benefit from the long term theme of growing demand for food globally.