There is an enormous unfulfilled demand for water infrastructure. Private investors who meet that demand may 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 in other parts of the world.
Emerging Markets
Emerging economies face the most significant 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 stems from rising industrial demand and a growing 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 also presents an opportunity for investors, and Ashton Global possesses the necessary experience in emerging markets.
Technology Will Drive Sustainability
New technologies may be able to solve 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.
From a practical standpoint, the Internet of Things (IoT) offers more immediate investment opportunities. IoT devices enable more effective monitoring and data collection for 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 costs decline, the use of IoT devices increases.
Private equity is often the best way to invest, as most water technology companies remain 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.
Water as an Asset Class
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, located outside Mérida in Spain, remains in use after nearly two thousand years.
Governments are often the only entities with the long-term perspective and sufficient resources to undertake major infrastructure projects. Municipal bonds are typically used for financing and are usually dedicated to a specific project.
Regulated utilities, owned by private stockholders and public-private partnerships, also play their part 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 can handle all the various niches of water infrastructure investment. Funds that invest solely in the United States overlook the strong demand for water in emerging markets. Public stock exchanges cannot give investors access to new water technology companies that are not yet listed.
Generally, our portfolio managers prefer companies that focus on B2B products and industrial technologies. We have identified private companies with innovative technologies that could penetrate the global water sector. These companies, in some instances, already have global partnerships with the world's largest multinationals and international governments.
Ashton Global can provide access to these fast-growing companies for our investors. Please email investor@ashtonglobal.com to learn more.
