Harvard Quietly Amasses California Vineyards—and the Water Underneath Making a bet on climate change, the university’s $39 billion endowment has been snapping up farmland and the related water rights On a former cattle ranch in California's Cuyama Valley, Harvard drilled a dozen water wells and planted a vineyard. Its green vines contrast with the dry fields around it. RUSSELL GOLD/THE WALL STREET JOURNAL 294 COMMENTS By Russell Gold Dec. 10, 2018 10:39 a.m. ET SHANDON, Calif.—Steve Sinton, a rancher, was baffled when a company he’d never heard of began buying large tracts of agricultural land near his pastures at above-market prices. The firm, Brodiaea Inc., over a few months in 2012 acquired more than three square miles of a flat-bottomed valley. “It was surprising, the prices they were willing to pay,” says Mr. Sinton, a partner in a family-owned ranch that raises cattle and grows grapes. A conventional agricultural business’s returns couldn’t have justified those prices. “It didn’t make sense to me.” Brodiaea’s drilling permits and property purchases were signed by Matt Turrentine, a local who had recently left his family’s grape-brokerage business. He wouldn’t say who was behind the investment, Mr. Sinton and other locals say. The firm bought more acreage, drilled deep-water wells and began planting vineyards capable of producing billions of grapes annually. One thing was clear. Brodiaea was willing to pay a premium for land that had good access to groundwater, an increasingly valuable resource given that aquifer levels elsewhere in San Luis Obispo County had fallen steeply. “We didn’t know who Brodiaea was,” says Sue Luft, a retired environmental engineer who lived nearby, “but we knew it was big money.” They got the answer in 2014, in a real-estate newsletter article about the buyer. It was Harvard. Since 2012, Harvard has bought thousands of acres of California vineyards. It now estimates the properties are worth $305 million. Notice how green they are?Harvard targeted acreage atop healthy groundwater deposits, even as nearby groundwater levels plunged. TRUESDALE VINEYARD NORTH FORK VINEYARD Photos: DigitalGlobe The university’s endowment manager, Harvard Management Co., was stealthily building a sizable grape-growing business on the Central Coast through entities including Brodiaea. With the land, it was acquiring rights to vast sources of water in a region where the earth’s warming is making the resource an ever-more-valuable asset. Drought has plagued California in recent years, hitting farmers particularly hard. The Central Coast experienced drought conditions for 30% of the past two decades, compared with 14% of the prior 100 years, a 2015 study found. Droughts have led to spikes in withdrawals from aquifers, many of which aren’t recharging as much during rainy season, says study co-author Noah Diffenbaugh, a Stanford University professor. Harvard’s bet has proven prescient. The $39 billion fund, among America’s biggest endowments, now values its vineyards at $305 million, up nearly threefold from in 2013, while its overall natural-resources investments have done poorly. The wager has also earned backlash from some farmers and other locals who fear Harvard eventually will use up groundwater and unduly influence water-use regulations. “Should they be controlling our groundwater plans?” says Debbie Arnold, a San Luis Obispo County supervisor. “I don’t think so.” Others, like Mr. Sinton, are less concerned, pointing out that some earlier crops were thirstier than grapes. “When I was a kid,” Mr. Sinton says, “they were growing alfalfa and sugar beets there.” A Harvard Management spokesman says it is the endowment’s policy not to discuss individual investments. In its financial report issued in 2012, the year Brodiaea began buying, Harvard said it liked the natural-resources asset class “because we believe its physical products are going to be in increasing demand in the global economy over the coming decades.” In a warming planet, few resources will be more affected than water, as more-frequent droughts, storms and changes in evaporation alter a flow critical for drinking, farming and industry. Even though there aren’t many ways to make financial investments in water, investors are starting to place bets. Buying arable land with access to it is one way. In California’s Central Coast, “the best property with the best water will sell for record-breaking prices,” says JoAnn Wall, a real-estate appraiser who specializes in vineyards, “and properties without adequate water will suffer in value.” RELATED A Warming Climate Brings New Crops to Frigid Zones Climate Change Is Forcing the Insurance Industry to Recalculate Coastal Property Was Once King. Fears of Climate Change Are Undermining Its Value Subscribe by email: Get the latest from Price of Climate Investors who see agriculture as a proxy for betting on water include Michael Burry, a hedge-fund investor whose wager against the U.S. housing market was chronicled in the book and movie “The Big Short.” In a 2015 New York Magazine interview, Mr. Burry was quoted as saying: “What became clear to me is that food is the way to invest in water. That is, grow food in water-rich areas and transport it for sale in water-poor areas.” Mr. Burry declined to comment. David Gladstone, chief executive of Gladstone Land Corp. , a publicly traded farmland-investment trust, says the recent California drought was profitable for his company and tenant farmers because they had access to water while others didn’t. The changing climate has made control of water more valuable, he says. “That is certainly true in most of the U.S., but very true in California.”