Investable water opportunities - tipped to be worth $30 billion in Australia alone - are increasingly gaining traction with retail and institutional investors.
The potential of the water investment market is "huge", particularly when it comes to water rights or entitlements, according to Willis Towers Watson senior investment consultant Dania Zinurova.
"From the institutional point of view, if you are going to have a well-positioned, diversified agricultural farmland investment portfolio, you do need to get exposure to water rights as well," Zinurova says.
With $2.7 billion in assets under management, Blue Sky Alternative Investments managing director Kim Morison says the majority of investors in the Blue Sky Water Fund are high net worth individuals and self-managed super funds.
The fund, which invests in water rights, has generated a 16.5% return net of fees and doubled investors' money in less than five years. It is resonating with other investors and engaging in "lots of ongoing dialogue with large institutional investors; industry super funds and the like."
Zinurova affirms water rights investments can deliver average returns between 10 and 15% (gross).
Because the sector is maturing and growing, liquidity and capacity are quite limited - which has been one of the main hurdles large intuitional investors face when allocating capital, she says. State-owned monopolies and their stronghold are also a deterring factor.
A public inquiry reviewing the efficiency of the water sector is also underway, aiming to establish clear and efficient investment structures in water infrastructure, particularly around water rights.
According to Australian Water Association chief executive Jonathan McKeown, investment in water infrastructure is vital, especially with Australia's growing population and extreme weather conditions.
He's seeing strong interest from investors looking for opportunities within a regulated market to secure modest returns over a long period of time.
Green bonds will likely emerge as a popular funding method, McKeown says, because they are structured around bottom line sustainability and they've become popular with the community and investors.
This is an extract of a news story first published in the latest issue of Financial Standard. You can view the full article on our iPad app.