Blue Gold: How Investors Are Finding Value in Water

Source: Thinkstock

Source: Thinkstock

It’s the most abundant and therefore taken for granted resource on the planet. It’s been called ‘Blue Gold’ by some, and its value really can’t be accurately calculated. In America, water is cheap, sometimes free, and it’s everywhere. People run their sprinkler systems several times a day without worry, we have water parks, our toilets use clean and fresh water, and there are many people out there who can sit in the shower for prolonged periods of time, singing or simply staring at the wall. But those are things strictly limited to life in the first world.

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For a big portion of the planet, there simply isn’t enough water to go around. Water is incredibly valuable, and with the onset of global climate change, it’s getting harder and harder to come by every year. Increased amounts of pollution, acid rain, and lower average precipitation rates will all play a role in declining resources, but the biggest hurdle to overcome will be a sharp spike in demand. The Organisation for Economic Co-operation and Development, a think tank based in Paris, found that the projected increase in water demand over the next 35 years will go up overall by 55 percent. That figure will be driven partly by 400 percent growth in manufacturing demand, as well as a big jump of 130 percent in domestic use. Adding to the problem, the number of people projected to live in river basins under severe water stress is expected to double, reaching 3.9 billion by 2050.

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In a world that is already struggling to fill demand for water usage, those numbers can be downright frightening. There is plenty of reason for optimism, however.

Higher water prices will undoubtedly come as a result of increased demand, and those prices won’t limit their effect to the third world. Everyone in the world will have to deal with the fallout of limited water, and because of that, brainpower and economic resources will be put behind the effort to find a way to either decrease demand, or increase supply. Daily Reckoning points out that the incredible majority of the world’s water, 97 percent, is non-potable salt water. Only 3 percent is available for human consumption, and the majority of it is frozen in glaciers and snowbanks across the globe. Governments surrounding freshwater resources, like the Great Lakes, are already taking measures to prevent their resources from being drained by far-flung municipalities, as they know their water is about to skyrocket in value.

Source: http://www.flickr.com/photos/blmurch/

Source: http://www.flickr.com/photos/blmurch/

As with any commodity, a future in which a product is set to skyrocket in demand and in price leaves a great opportunity for investment. There are plenty of arguments as to how taking advantage of a worldwide shortage of the most important basic resource is immoral or inappropriate, but it could be on the backs of investors that water finds its saving grace. GrowthCap LLC, a financial technology firm facilitating growth equity raising for private companies, highlights how investors have begun to place bets on water infrastructure, water treatment, and water-related manufacturing in their report “Making It Rain: How Private Investors Are Turning To Water For Outsized Returns.”

Case in point, Popular Science recently showcased a new device built by Dean Kamen which can help create fresh, clean water from any water source available. Dubbed the Slingshot, the device was created by Deka Research and Development in New Hampshire, in conjunction with Coca-Cola (NYSE:KO). The Slingshot processes water through vapor compression distillation to purify it, and can supply up to 250,000 liters per year, enough for 300 people. Perhaps the biggest upside to the Slingshot is that it can take absolutely filthy or unusable water, say from the ocean or sewage, and render it usable for human consumption. The benefits will be enormous for locations in Africa or Asia where clean water is hard to come by, and with Coca-Cola’s incredible distribution system, over a century in the making, getting clean water devices to areas that need them shouldn’t be too much of a burden.

“You talk to people that travel a lot and they say, ‘If there’s one thing you can buy anywhere in the world, it’s a Coke.’ You know the joke: A guy takes three weeks climbing to the top of Mount Everest; he gets to the top and buys himself a Coke. So I thought, Coke is something you drink, and they have coolers that are about the size of our machine, and they have bottling partnerships around the world. I’m going to go and try to convince them to do this,” Kamen said.

Kamen and Coca-Cola are hardly the only ones working on solving the world’s water issues. GrowthCap points out that other large companies, including Shell (NYSE:RDS.A), IBM (NYSE:IBM), and HSBC (NYSE:HSBC) are working together on research to develop new technology and operational improvements to improve the efficiency with which water is used. The action taken by these companies and others has spurred on action by investors, who are hedging bets on how water infrastructure, treatment, and manufacturing will play out over coming years.

The water infrastructure is of particular note, as the United States is facing a crumbling and rapidly aging setup of their own. According to a brief released by the National Academy of Sciences, federal funding for new project construction and infrastructure rehabilitation has seen a big drop. The U.S. Army Corps of Engineers has built approximately 12,000 miles of river navigation channels, 700 dams, and 14,000 miles of levees, among other things, all within the past century or so. After decades of use, many of these facilities are in need of replacing or repair, and so far, the money to do it isn’t showing up. If federal funding can’t be secured, the rebuilding of national water infrastructure could be another area for private investors to look toward.

Improvements in water infrastructure and advances in technology that add to the supply of fresh water benefit everyone, not just those hurting for additional resources. Droughts can be staved off for longer durations by farmers, sickness and disease can be further combated, and food and beverage production could even ramp up efforts. Manufacturers in particular could see a big pay-off. GrowthCap notes that manufacturers will be able to grow and expand, building themselves into attractive targets for bigger companies looking to expand their reach.

“The continued upswing in the water replacement cycle benefits those manufacturers providing machinery and parts for the industry. Specifically, firms manufacturing pumps, pipes, flow control units, metering systems, filtration devices, and other distribution infrastructure items will experience increased demand for their products. Moreover, they will be viewed as attractive acquisition targets given the synergies derived from vertical integration. In particular, manufacturers seeking to grow from a single product firm to a full systems provider will be aggressive in acquiring complementary product and services companies to enable an expanded offering to existing clients,” GrowthCap writes.

Private industry, working in cohesion with the local municipalities, will be a big force in the next stage of water technology and development. Although the numbers look staggering and its easy to get discouraged about the future of water, there are plenty of reasons to be optimistic. The technologies Coca-Cola is developing, along with measures being taken by companies like Shell and IBM, show a lot of promise and could ultimately save a lot of lives. With the backing of private investment, new projects could get a kickstart headed into times of scarcity.

For investors, the future of water is an area for close examination. There is definitely money to be made in the long run, and the opportunity to help out a lot of people in need across the globe as well. With climate change further impacting an already fracturing market, investment is needed now more than ever. For those with the capital, an investment in water could not only make a difference in annual returns, but for future of mankind as well.

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