Why Water?

Water is essential, underpriced, local, non-substitutable, and broadly taken for granted, until it is unavailable. Worldwide water demand is increasing driven by population growth, growing middel class consumption, urbanization, industrialization, and expanding energy needs. Simultaneously, global supply is under threat due to inefficient use, pollution, poor groundwater management, and increasing drought and flood due to climate change. As a result, water is becoming a limiting factor to macroeconomic growth and in some cases social stability.

The water industry is experiencing revolutionary changes due to demand growth and the scarcity of inexpensive sustainable and safe supply alternatives. The world is not running out of water, the world is running out of cheap clean water. This is creating unprecedented investment opportunities in water infrastructure, water resource development, water efficiency, water quality/quantity monitoring, infrastructure, industry consolidation and technological implementation. In the developing world, more than 1 billion people lack access to a reliable and adequate water supply and to safe wastewater disposal systems. Addressing their needs requires hundreds of billions of dollars of investment. The OECD estimates that by 2025 water will make up an increasing share of global infrastructure investment topping $1 trillion annually. .

The water industry is a capital intensive industry providing investors with long term visible revenues and pricing.  Many of the sector's businesses enjoy long duration cash flows with inflation linked pricing. The industry has both regulated monopolistic business models and, unregulated oligopolies, with durable customer relationships. Water’s local nature creates regionalized supply and demand imbalances not affected by global supply and price swings. As a non-substitutable resource, water's relatively inelastic demand insulates it from economic cycles. Importantly water rates have durable positive pricing power, historically increasing at a rate greater than inflation, driven by infrastructure upgrades and expansion to ensure quality and supply reliability. Presently, there are a growing number of privatization opportunities expected as stressed local and federal balance sheets seek solutions for rising and unavoidable capital spending needs. 

Water and Impact

Investing in water combines free enterprise with serving the common good and delivering measurable positive impact.  Delivering clean water and treating waste water is essential to sustaining communities and public health while restoring rivers, coastal and marine ecosystems. Energy consumption can be ireduced through more efficient water systems as moving and treating water consumes ~ 3% of world's electricity; . Providing reliable, regulated water and sanitation services in developing countries increases economic productivity, improves public health, promotes greater gender equality (liberating women and girls from the burden of hauling water) and improving eductaional outcomes.  Water infrastructure investment in developed markets has an exponential impact on job creation and social stability.

The primary outcome of climate change is the growing intensity of drought and flood requiring further investment to insure water supply resiliency and clean water solutions . Water, managed properly, is  the ultimate renewable resource.allowing for sustainable supply with no depletion curve .

WAM is an active water policy participant, advocating for greater recognition of the need for greater transparency around water needs and risks in government, society, culture and most importantly in capital markets. Solving water problems requires substantial capital investment, operating competence, performance transparency and regulatory certainty.

Water provides investment diversification and inflation protection:

Water investing has historically acted as an effective hedge against inflation with water pricing rising n excess of the rate of inflation. These increases are driven by the need to upgrade and maintain infrastructure  (storage, transmission, treatment) and develop sources of new supply.  There is increasing competition among users of water (industrial, agricultural, residential and environmental) that require more efficient and flexible mechanisms to deliver an allocate water.

Clean water is scarce, in a world of excess liquidity where most everything is in oversupply.

Lower Price Compared to Electricity, Gas, Cable, and Telecom: The comparably low price of water relative to value leaves ample room for price increases to cover full costs of operations, capital investment, and reliable supply.

Low Correlation and Volatility: Water demonstrates a low level of correlation with a broad universe of commodities and equity indices, and has also tended to increase in value more consistently over time.

Diversification: Water is a critical input to future growth: food and energy production, oil and gas development, manufacturing, mining, housing, and data storage among others, allowing investors in water to gain broad growth exposure to a variety of real assets and economic activity.

Water Asset Management believes that the water industry is entering an unprecedented period of transformation . Water companies and assets offer investors the ability to realize capital appreciation, sustainable long term income growth, positive impact, with relatively low levels of risk and volatility.