Agriculture has attracted the attention of Australia's only Islamic compliant superannuation fund, Crescent Wealth.
The young super fund, which has about $370 million under management, is taking its socially and environmentally responsible investment strategy into the Murray Darling Basin water market, and looking further at other farm sector, forestry and aquaculture asset options.
Established just nine years ago to align with the Muslim faith's principles, Crescent Wealth has an active ethical focus, avoiding investments in industries linked to gambling, alcohol, tobacco and weaponry.
Nor does it invest in interest-bearing financial products, or lending and insurance institutions - a policy which aligns with the Islamic church's teaching on money lending.
A good fit
Crescent's investments head, Mas Harris, said water rights were a great fit with the fund objectives and its alternative investment options.
"The trade is well established and regulated which gives us assurance as investors that we are entering a market with good governance, stability and transparency," he said.
Based on research by investment manager, Riparian Capital Partners, water rights also generate steady returns, averaging yields above four per cent since 2008.
Mr Harris said current wet seasonal conditions provided an opportune time to buy into the irrigation market while water rights were more affordable than when eastern Australia was in the grip of drought and water values were soaring three years ago.
"However, in reality water values have held up quite well because there is a lot of long term demand for water rights, and it's growing," he said.
Crescent Wealth has put its investment into funds managed by Riparian Capital Partners, which invests in Murray Darling allocations as well as irrigation rights in northern Australia.
The Murray Darling Basin alone contains about two thirds of Australia's irrigated farmland.
Riparian Capital invests in perpetual water right entitlements which are able to be leased as annual allocations or sold when demand is strong.
Its portfolio varies in response to factors such as major storage dam levels and climatic conditions.
Mr Harris said given Australia was one of the world's driest continents, water security and the efficient use of that resource provided a good investment rationale for Crescent's current 13,000-strong membership and for the longer term as the fund grew and the market matured further.
Alternative asset class
Water right investment was a particularly attractive option for members who wanted to reduce volatility in their portfolios because returns were uncorrelated to traditional asset classes.
Riparian Capital Partners managing partner, Nick Waters, said there were some clear trends playing out in the market around climate change with lower rainfall patterns and higher temperatures which supported water values going forward.
He said major long term drivers of irrigation water entitlement value reflected landholders' capacity to pay for water.
"These include moves to higher value cropping systems and productivity initiatives which enable farms to produce more value per megalitre of water," Mr Waters said.
Mr Harris said Sydney-based Crescent Wealth's interest in agriculture as a diversification alternative from the share market and unlisted public companies made a lot of sense.
Agriculture draws us strongly towards areas that fit the bill for Crescent - long term investing, stable returns and food production- Mas Harris, Crescent Wealth
"It draws us strongly towards areas that fit the bill for Crescent - long term investing, stable returns and food production," he said.
"It's important for us to support investments with purpose which contribute to the betterment of the community and humanity in general."
The healthcare sector has subsequently been a strong investment area for the fund.
"We feel the agriculture space has plenty of scope and we are looking at getting more involved as we become more familiar with the sector," he said
The Muslim superannuation fund's ethical objectives closely align with other faith-based retirement investment funds such as Australian Ethical Super and Catholic Super.
While primarily established to service Australia's 1.2m Muslims, Crescent Wealth does have a core of investors from non-Islamic backgrounds attracted by the fund's investing principles.
Data from the Association of Superannuation Funds of Australia indicates mainstream pension funds invest on average between 25pc and 40pc of their wealth pool directly in non-Islamically compliant assets, including interest bearing finance products and shares in companies dealing in weapons, alcohol and gambling.
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