Regals Phil King BUYING

Comments from Regal Partners Private Fund December 2024 insight:

WATERIn the final quarter of 2024, the Partners Fund Investment Committee increased theWater strategy allocation from 5% to 10% of the portfolio.While returns from the Water strategy were immaterial to the performance of thePartners Fund in 2024, we continue to believe that we are on the cusp of a cyclical andstructural li¦ in returns over the years ahead.Water is the most critical and scarce input into Australia’s food production chain.Following three successive years of high rainfall events across eastern Australia andchallenging operating conditions for water market users more broadly, the traded priceof agricultural water licenses experienced a broader pullback in 2024 from the all-timehighs recorded in Q1 2023.We believe this pullback will represent the cyclical low point of this pricing cycle. Weare actively and opportunistically adding exposure to this highly unique asset class inanticipation of a number of key factors combining that we think will likely see the tradedprice for high quality water entitlements across the southern Murray Darling Basin(sMDB) rise from here.From a water supply perspective, winter was dry, spring experienced lower thanaverage rainfall, and half way through summer, rainfall is below average. Water storagelevels across the sMDB have fallen to 70% from 96% a year ago. We believestorage levels are likely to start drawing down significantly in the absence of major rainevents.

As a “cap and trade” market (ie the number of water licenses across the region arepermanently capped, meaning no additional licenses to extract agricultural water willagain be created), the supply picture appears to be further tightening as a result of theFederal Government’s decision to buyback permanent licenses from agricultural userson market, in an effort to redirect water for environmental outcomes.The Government intends to buyback 6% of the entire consumptive agriculturalentitlement pool this year. To put this in context, the Federal Government’s buybackwould represent up to five times the annual turnover of water entitlements. We forecastthat the buyback will pay +20% to 25% premiums to prevailing market values. The firsttender results will be known in Q1 2025.With supply tightening, demand for water has continued to elevate as plantings ofpermanent crops (such as almond tree crops) continue to increase in size across theregion. The current 60,000ha of almond farms is expected to expand to over 75,000haby 2030. Unlike seasonal or annual crops, permanent crops must be watered eachyear. A mature almond farm, for example, requires 14ML of water per hectare perannum. Permanent plantings represent essentially an inelastic buyer of agriculturalwater that is increasing in size each year.We continue to believe that Australian water licenses represent a unique and scarceinvestment opportunity, completely uncorrelated to traditional asset classes and anexcellent source of diversification for the Partners Fund.