Water investing in 2018: A crisis in the near term, tech solutions for the long term
- June 1, 2018: Vol. 5, Number 6

Water investing in 2018: A crisis in the near term, tech solutions for the long term

by Sebastian Vanderzeil, Craig Metrick, Jennifer Leonard and Emma Currier

Water investing is a perennial area of interest for investors, particularly during water crises and when experts release forecasts of a future with increased water scarcity. To date, however, opportunities for investors have been limited.

Our assessment of short-term and long-term trends finds the investment opportunities in water will not change rapidly. To understand potential future water investment opportunities, we assessed trends in the private financing of water technology companies since the early 2000s. We collected available data on public and private investments from Bloomberg and CrunchBase. Given these sources are not exhaustive, our analysis, therefore, offers an indication of the water-financing field based on the limited data publicly available.

Private investment in water technology increased approximately 180 percent between 2003 and 2016. The later years with high levels of investment reflect a few, relatively large investments concentrated in certain water technologies. Since 2011, investments in smart metering have been a source of investment returns, as these companies have been subsequently bought-out by larger engineering and technology companies. Currently, reverse osmosis technologies funded in 2014 and 2015 have not reached maturity.

In addition, we assessed exits from water investments to provide an indication of financial returns. Those exit strategies are acquisitions — though acquisition multiples have declined since the early 2000s in the water technology sector — and public listings.

In our assessment, barriers to increased water investment are the result of a lack of opportunities, rather than muted investor interest. Still, investors can take into account three asset categories: alternative investments, the public equity markets and fixed-income instruments.

Alternative investments in the water space take several forms, including dedicated funds that invest exclusively in privately held water-
related companies (though such pure plays remain rare), or a fund focused on sustainability-related technologies and products that include a sleeve dedicated to water, or the small group of hedge funds focused on the water sector.

The opportunity set for investing in public equity markets within the water theme is growing, although it remains far from robust. Three broad categories include thematically focused funds anchored around the concept of water investment; active public equity strategies focused on technology related to sustainability and clean tech; and clean-tech and renewables exchange traded funds, of which there are several.

Fixed income is the most challenging asset class for exposure to water because there is a lack of clearly thematic managers organized around the sector; however, we provide three categories for investors to consider: (1) Specific corporate bonds in companies whose business lines include types of water technology; (2) municipal bond portfolios that have exposure to upgrading water-, wastewater- and sewage-treatment facilities; and (3) green bond strategies to gain exposure to the water theme, though not exclusively focused on water.

Understanding managers’ theses of the water market is key for investors placing capital within a fund, given the uncertainty of the water sector and long investment timeframes. Investors can question managers on their views of the market to begin to differentiate between approaches.


Water Investing in 2018, produced by Sebastian Vanderzeil, Craig Metrick, Jennifer Leonard and Emma Currier of Cornerstone Capital Group. Read the full report at this link:

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