Exclusive: Energy minister went to university with the fund manager who was chief investment officer in Pacific Alliance Group

This article is more than 1 year old

This article is more than 1 year old

One of the main beneficiaries of an $80m sale of water to the federal government was a Hong Kong-based investment fund whose founder and chief investment officer attended New College, Oxford, alongside Angus Taylor.

In 2017, the government paid Eastern Australia Agriculture $80m for its entitlements to overland flows on two properties in Queensland.

There is no evidence that Taylor played a role in the 2017 sale and he has said he was not aware of it until after it occurred.

An investor in EAA was Pacific Alliance Group, a Hong Kong-based fund that was established in 2002 by Chris Gradel, who is its chief investment officer.

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Taylor, now the energy minister, and Gradel were both at New College between 1990 and 1993. Both were members of the elite New College boat club. Gradel was captain of boats and Taylor, a Rhodes scholar, lists rowing among the several sports he participated in while at Oxford.

The two remained friends after college, though it is understood they are not in regular contact.

The size of Pacific Alliance Group’s interest has not been disclosed but it is understood to have had less than 50% and it did not have a representative on the board of EAA. It is understood to have been the a significant investor.

After Pacific Alliance Group was approached to take a stake in the investment opportunity in Australian agriculture in 2007, Gradel is understood to have recommended Taylor to the consortium as a consultant with expertise in agriculture.

Taylor has described himself in his parliamentary biography as a “co-founder” of Eastern Australia Irrigation, the name of EAA’s Cayman-based parent.

He served as a director on both the Australian and Caymans companies but has said he resigned all roles before he entered parliament in October 2013.

“I was a consultant and I was paid consultant’s fees,” he said. “That’s what consultants do. I never had an interest in the company or any related company nor did any of my family members.

“I concluded any relationship with the company before I entered parliament. I didn’t receive any benefit from the buybacks; indeed I wasn’t aware of them until some time after they happened.”

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One of the drivers for the EAA investment was the water rights associated with the properties. In 2007 the Murray-Darling basin plan was being rolled out and water rights were expected to become increasingly valuable, particularly as the federal government had announced plans to buy back 2,750GL of water from farms to restore flows to the environment.

Taylor has described his role as identifying the two huge cotton farms, Kia Ora and Clyde in Queensland, and providing advice on the agricultural business.

Asked by the Guardian about his relationship with Pacific Alliance Group and Gradel, a spokesperson for Taylor acknowledged that they had been friends at Oxford.

The consortium’s investment in EAA eventually proved lucrative but it took longer than the five to seven years the investors had expected.

EAA sold its overland flow rights, the least reliable form of water entitlements, in 2017 for nearly $80m. It immediately booked a profit of $52m and revalued its remaining water rights.

One investor, EF Realisation Fund, reported to the London stock exchange that it was the highest price ever paid by the Australian government for water.

The lack of transparency in the water sale, which proceeded without tender, has been the source of ongoing scrutiny by the Senate. The agriculture department has refused to release the details of independent valuations and there have been ongoing questions about the reliability of the water that EAA sold to the government.

Tony Reid was the consultant for EAA on the 2017 water sale and played a central role in establishing the volume of water the government was buying. He was paid a large consultancy fee, rumoured to be $600,000.

Reid, who worked with Taylor at McKinsey’s before Taylor entered parliament and who has joint agricultural investments with Taylor and his brothers, said he undertook the consultancy for EAA in his personal capacity.

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A freedom of information request revealed Reid played a major role in establishing the volume of water that could be expected from the irregular overland flows. This modelling informed the sum paid by the government.

The accounts of the Australian company, EAA, show it making significant losses before the water sale, although the full picture is difficult to gauge as the parent company was domiciled in the Caymans.

Gradel is one of Hong Kong’s most successful investors. Pacific Alliance Group, which he founded in 2002, has grown into one of Asia’s biggest investors in private equity and real estate. Its website says it has US$30bn under management.

Gradel has recently made a large donation to New College, Oxford to enable it to rebuild its residential wing. It will be known as the Gradel quadrangles.

The Guardian is not suggesting that Taylor, Gradel or Reid did anything wrong. They were simply all involved in the same company at one time or another.

The law firm Ashurst, which represents Eastern Australia Irrigation, the Caymans-based parent, issued a statement last week saying that while Taylor was a director, he and his family do not have a financial interest the company.