As liquidity is drained from credit and money markets and pours into oil and gold, another asset class that could offer long-term returns to the discerning investor is water.
Water shortages are on the rise—stemming from soaring demand, growing populations, rising living standards and changing diets. A lack of supply is compounded by pollution and climate change.
Investors are mobilizing funds to buy the assets that control water and improve supplies, especially in developing countries such as China where urban populationsare booming, further tightening supply.
“Many of these cities have tripled in size in the last 10 years so there’s just an unaddressed need, there’s an enormous opportunity for investment,” said Kimberly Tara, chief executive of commodities investor FourWinds Capital Management.
FourWinds will this year start raising global funds initially of up to €3 billion (Rs19,050 crore) to invest in water, Tara said.
Water shortage is already a serious problem in many regions of the world, as underlined in a December report from Zurich-based Sustainable Asset Management (SAM).
These include southern Spain, West Asia, Central Asia, Pakistan and southern India.
China is a particularly strong example. It has a fifth of the world’s population but just 7% of the water.
Large equipment suppliers for sourcing water and treating waste will not operate in parts of the developing world, said Merrill Lynch and Co. analyst Robert Miller-Bakewell.
“They’re pretty selective about where they go. That means a lot of this need will not necessarily be addressed in the near term,” he said. “The technologies exist. You and I and the World Bank and everyone else can identify the need. The big problem all along is about who’s going to pay for it all.”
Parts of Africa are especially dry—both of clean water and cash—at a time when prices are rising for the steel and concrete raw materials for treatment plants.
A combination of unsafe water and poor sanitation kills about 1.8 million children annually, a Merrill report estimates.
The FourWinds Capital Management investment approach is to go after projects in water treatment and desalination and companies which make meters, pipes and pumps.
Little money stands to be made from owning and charging customers for water itself, because governments subsidize this to ensure the vital asset is most under-priced when in greatest need.
Where there are customers who can afford them, new technologies may offer a profitable solution to excessive water extraction.
Like FourWinds Capital, agriculture firm Monsanto Co. has been swotting up on climate change, said its head of technology strategy and development David Fischhoff.
In industry, another major water user, innovation in water-recycling is exciting former dotcom entrepreneurs, in a trend mirroring Silicon Valley’s recent enthusiasm for alternative energy.