Defining the investment value of Water Entitlements

Abstract

As tradable rights to access an exclusive share of a water resource, Water Entitlements (WEs) may be regarded as assets that have the potential to provide substantial returns to investors. In this study, I investigated whether the classification of WEs as an “asset class” could improve the distribution of costs and benefits derived from water entitlement investment decisions between private investors, water entitlement (WE) holders, and regional communities. This study explored the intersectionality between the water entitlement investment strategies of asset managers and the water management strategies of water resource managers. This involved a review of literature in the areas of financial investment, water markets, Indigenous values of water, and common‐pool resource management, as well as surveys and interviews of investment industry (Group 1) and water resource managers (Group 2).Key findings noted the consensus between the survey groups regarding the importance of the following on asset managers’ WE investment decisions: the classification of WEs as financial assets but not as an asset class influences their selection, acquisition, and allocation within investor managed asset portfolios; the classification of WEs as intangible assets impacts on the allocation of WEs within investor managed asset portfolios and reported rates of returns on portfolios; and government policy regarding the water resource planning framework underpins investors’ long‐term WE investment strategies. Overall, the findings of the survey, interviews, and literature review provide the basis for the inclusion of a common property regime within the water resource planning framework to improve the distribution of costs and benefits attributed to WE investment decisions. A common water entitlement (CWE), allocated to regional communities within an enforceable legal framework provides opportunity to integrate collective community values into the water allocation process. CWE, like WEs, are tradeable assets from which communities could reasonably expect to generate annual financial returns, realize capital appreciation, and manage the underlying physical water resource.