Niche Investments in Water Infrastructure

There is an enormous unfulfilled demand for water infrastructure. Private investors who meet that demand may be able to earn excess returns while supporting the sustainable development of public resources.

Private Equity Investment and Economic Activity

The American Society of Civil Engineers calculated that the US requires an additional $82 billion each year in government spending on water infrastructure. They also estimated that investment would generate more than $220 billion a year in increased economic activity.

According to the CBO, the US federal government dramatically reduced its contribution to water infrastructure. The federal share fell from about 60% in 1977 to between 10% and 20% over the last several decades. The result is an underdeveloped water infrastructure in the United States, and the situation is even more critical elsewhere.

Emerging Markets

Emerging economies face the greatest water management challenges and hold the most potential for water infrastructure investment. There is a direct correlation between higher incomes and increasing water treatment spending. This increase in water spending comes from rising industrial demand and greater demand for water-intensive foods as incomes improve. More ominously, much of the population in India and China live in high-risk areas.

Over the next several decades, the combination of climate change and increased usage could create severe water shortages. Cape Town in South Africa already faced a water crisis in 2018. To avoid disasters in the future, we must make commitments to improving water infrastructure in developing economies today. This danger is also an opportunity for investors, and Ashton Global has the necessary experience in emerging markets.

Technology

New technologies may be able to solve growing water problems and provide another profitable niche for investors. Industrial 3D printing offers potential benefits for water treatment, along with augmented reality and wearable technologies. For example, a University of Bath study showed that 3D printing might be used to produce reverse osmosis membranes.

As a practical matter, the Internet of Things (IoT) presents more immediate prospects for investment. IoT devices allow better monitoring and data collection on water projects. The average cost of an industrial IoT sensor was $1.30 in 2004, but IoT ONE projected it would fall to $0.38 by 2020. As sensor cost declines, the use of IoT devices increases.

Private equity is usually the best way to invest because most water technology companies are still unlisted. Also, note that water technology investment is not limited to companies that produce technology. It includes bonds to finance upgrading older systems, public-private partnerships, and other water-related projects.

Investment Vehicles

Trying to define water infrastructure as an asset class is difficult, but it is possible to identify particular niches for investment. On the whole, infrastructure requires more planning for sustainable use because structures usually last decades and sometimes much longer. The Proserpina Dam outside Mérida in Spain is still in use after nearly two thousand years.

Governments are frequently the only entities with long enough time horizons and sufficient resources to undertake major infrastructure projects. Municipal bonds are typically used for financing, and they are often dedicated to a particular project. Regulated utilities owned by private stockholders and public-private partnerships also play their parts in building and maintaining infrastructure. Finally, there are now a few dedicated funds that focus on water-related investments.

Investing in Water Infrastructure

Few firms are able to deal with all the different niches of water infrastructure investment. Funds that invest only in the United States entirely miss the strong demand for water in the emerging markets. Public stock exchanges cannot give investors access to new water technology companies that are not yet listed. 

In general, our portfolio managers prefer companies focused on B2B products and industrial technologies. We have identified private companies with innovative technology that could penetrate the water sector globally. These companies, in some instances, already have global partnerships with world’s largest multi-nationals and international governments. Ashton Global can provide access to these fast-growing companies for our investors.

Please contact us at +1 212 514 8953 or email investor@ashtonglobal.com to learn more.