Investment funds for privately owned water rising

Water has yet to live up to its hype as the commodity bet of the future, but the world's most basic resource is drawing ever more money as asset managers seek steady inflation-protected returns.

Investment opportunities are increasing as cities in faster growing markets expand and as governments in more developed countries, short of cash, are forced to turn to the private sector to fund upgrades to meet tougher environmental standards.

Meanwhile, investors such as pension funds want alternatives to rock-bottom bond yields and volatile equity markets.

"There are opportunities in the water space that haven't been seen for decades now that governments have run out of money," said a Zurich, Switzerland-based investor, who recently launched a water fund.

The global business, including drinking and waste water, is thought to be worth about $450 billion a year and is growing at up to 6 percent annually, according to Citigroup and Reuter’s new service investigations.

The assets of funds focused on water and specialist water funds nearly doubled from just over $12 billion in 2010 to nearly $24 billion in 2011, according to data from Lipper, a Thomson Reuters service. That could reach $50 billion by 2015, industry analysts believe.

Growing urban populations and a lack of government money to upgrade infrastructure are increasing the need for private sector investment, said a Swiss banker whose bank has a $2.9 billion water fund, the world's largest. The quote is that “these drivers are solid as rock.”

Private Money

Private sector investment is likely to account for 30 percent of investment in drinking water and waste water by 2016, compared to 19 percent now, according to the independent Global Water Fund consultancy.

Long-term predictions have yet to be borne out that climate change and swelling cities could mean water takes off as a commodity investment to rival oil, but investing in such a basic need has an appeal at a time of global uncertainty.

Investor data show the top water-focused funds have returned over 10 percent year-to-date against 6.4 percent for the MSCI World Index. The iShares global water Exchange Traded Fund has returned 17.6 percent.

Many funds invest in water-related stocks, such as treatment companies, meter makers and utilities.

"Despite a compelling long-term growth case, global water companies trade at discounts on earnings and cash flow and provide a better dividend yield than the broad equity market," said Patrick Armstrong, chief investment officer at Armstrong Investment Managers.