By Nick Kelly
WMA holds ~15% in Australian water entitlements as dry conditions and government buybacks have tightened supply and lifted expected returns.
The WAM Alternative Assets (ASX: WMA) investment portfolio has approximately 15% exposure to water as an asset class, predominantly through water entitlements in the Murray Darling Basin (MDB) through our specialist investment partner, Argyle Group.
Water entitlements are legal rights to a perpetual allocation of water. They govern access to all consumptive water in the MDB, with the exception of limited statutory rights for basic domestic and stock use.1 The MDB is Australia’s largest river system, providing drinking water to over 3.4 million people and accounting for nearly half of Australia’s irrigated agricultural production.2 Coupled with the fact that water entitlements are a capped finite market, making them a highly attractive asset class already, the MDB is one of the world’s driest river systems making these water entitlements specifically of high value.
Water entitlements offer a dual return profile, providing potential capital appreciation alongside attractive income through the annual sale and leasing of allocated water. Importantly, water entitlements have historically demonstrated minimal correlation to traditional asset classes, contributing to a smoother and more resilient return profile for an investor. The market for water entitlements is highly specialised, with most products on the market designed for wholesale investors with high minimum investment sizes. Given the complexity of the asset class, active management and agricultural experience are key to achieving stable long-term returns. The Argyle Group are agricultural experts who have constructed a portfolio of diversified high-quality water securities. WMA’s investment in the Argyle Water Fund, generates both capital growth and income for investors through the leasing and active trading of water entitlements and allocations.
Why we hold a strategic allocation to water:
- Uncorrelated Returns: Water entitlements have historically shown low to negative correlation to traditional equities and bonds, with returns driven by rainfall and government policy rather than economic cycles. This is one of the primary benefits of water as an asset class and why it plays a such a pivotal role in WMA’s investment portfolio.
- Structural Upside: Water entitlements exist in a finite market, with no new entitlements being issued and a government buyback actively reducing the already limited supply. As a result, the fundamental scarcity value of entitlements is being repriced upward.
- Income & Capital Growth: Specialist water investors can actively manage water allocations each year to derive income through sales and leases, while simultaneously benefitting from the capital appreciation of water entitlements.
- Policy Visibility: Unlike past interventions from the government, the current government buyback program is progressively disclosed through transparent tenders, providing investors a clearer line of sight on future supply reductions. The current government have clearly stated their mandate to continue the government buyback program at scale to secure water entitlements for environmental use.
Regulatory Tailwinds
Holders of water entitlements in Australia are currently benefiting from a regulatory tailwind. The Commonwealth Government’s Restoring Our Rivers trading strategy (announced in 2024) seeks to purchase substantial volumes of water entitlements and direct the resulting annual water allocations to restore river health. The voluntary government buyback is significant in size and will reduce the volume of entitlements available to productive users such as irrigators and investors alike. The resulting supply-side pressure has historically led to higher long-term entitlement prices and greater competition for remaining water allocations. Figure A below shows the size of the government buyback historically and likely sizes going forward, with purchasing expected to continue to 2027. For context, as of mid-2023, only approximately 198 gigalitres (GL) of the total 20,100 GL MDB entitlements were traded privately that year3 – so even a 50 GL government buyback represents a substantial share of actual market activity.
Figure A: Commonwealth Buyback Volumes (GL)
Water pricing on the up
Figure B below shows the volume weighted average spot price of water since 2022. In 2022, the spot price of water was relatively subdued since it was a wetter year. Being the start of the new water year, water prices spiked in July 2023, and continued to rise through to November 2023 due to forecasts of a hot and dry summer at the time. More recently, we have seen the spot price of water steadily rise due to the return of drier conditions in the southern MDB and tightening water supply due to the government buyback highlighted above. Importantly, our investment partner, Argyle Group, employ an active management strategy with respect to the water entitlements they hold, using the spot market for opportunistic trades based on the prevailing supply, demand and price dynamics.
We are aware that several institutional participants have sold significant volumes of water entitlements to the government under the buyback scheme at premiums to market prices, supporting recent returns. By contrast, Argyle has not participated in the government buyback and has maintained a longer-term investment approach. As supply is removed from the market, irrigators are increasingly seeking longer-dated water leases at more favourable rates for entitlement holders. More supportive weather conditions have also seen spot prices continue to firm in December 2025, which we expect to be positive for performance. We expect Argyle’s performance to improve through 2026 and potentially 2027, reflecting the longer-term positioning of the portfolio, which we continue to monitor closely.
We continue to see strong upside in water entitlements for the WMA investment portfolio as a cash-generative, inflation-protected opportunity underpinned by simple supply-demand dynamics, with strong diversification benefits and exposure to our long term thematic of food scarcity. If seasonal conditions remain dry and the government buyback continues at the current pace, entitlement prices in the MDB are likely to move higher, particularly for the high security entitlements that WMA invests in. Even with a return to average rainfall and MDB inflows, the structural supply imbalance created by the government buyback is expected to persist, supporting valuation increases over the medium term. WMA’s investment in high-quality, scarce water entitlements is well positioned to benefit from strong structural tailwinds that are more compelling today than at any point in the past five years. Water continues to be a key allocation in the WMA investment portfolio, with our shareholders benefitting from an asset class that provides capital appreciation, income and strong diversification benefits.
To learn more about WAM Alternative Assets, visit our website here.
1 Murray-Darling Basin Authority, Water entitlements in Basin states (2025)
2 Science, Technology, Environment and Resources (2025)
3 ATO, Register of foreign ownership of water entitlements as at 30 June 2023 (2023)
4 Source: Argyle Group Analysis