Investing into water is nothing new. Asset management firms Water Asset Management and BlueSky Water Partners have been at it since 2006 and 2012 respectively. But awareness of the need to regulate and control water usage for agriculture is growing quickly. And with it, investment opportunities.
Yesterday was the UN’s World Water Day and the organisation highlighted the importance of forests, wetlands and grasslands in the conservation of water and sustainable water management. It also highlighted the huge amount of water needed to produce food; just two steaks need 15,000 litres of water.
So how are private capital investors both contributing to and taking advantage of this scenario?
Water rights and water management
Water Asset Management recently closed a $100 million private equity fund that buys water-rich farmland, leases it out to farming operating partners and then helps develop the property’s water resources so that extra water can be sold to other consumers. This development includes improving efficiencies, establishing conveyance or re-permitting water rights.
“Our downside is an agriculture land leasing return,” said Matthew Diserio, president of Water AM. “Our upside comes from a monetisation event from the developed water resources which we sell on.”
The fund, Water Property Investors, was sold to a mix of institutional investors from state pension funds to funds of funds to endowments and also to high net worth individuals, according to Diserio. Overall, the company has transacted on $1 billion of direct water investments and the interest is only increasing, he added.
“There has been increasing recognition by allocators that water is an essential resource that requires a substantial amount of capital every year but that also has outstanding return and economic characteristics. There’s lots of inefficiency in the water industry and mostly because it’s not an extremely well-understood industry and it’s capital intensive. But that’s the opportunity: by providing capital and industry competence, we are in a unique position to generate returns by providing solutions.”
Water Asset Management also offers investors exposure to the space through its two open-ended public equity funds, which currently manage $400 million between them. These are global funds investing into the listed equity of regulated water utilities, concessions, related infrastructure, wastewater companies and more. The fund’s exposure to emerging markets has been as high as 40 percent at times and Diserio believes there is a big opportunity to improve the systems in these countries and create an impact.
“We love the fact that the water industry both generates exceptional long-dated inflation protected returns and at same time, we think is the single highest impact industry in the world,” he said. “We think water investing is responsible investing.”
Mining tycoon Andrew Forrest has recently started working on a huge-scale water infrastructure project in Australia through his company Minderoo Group. The project, which aims to redistribute the resources throughout the country and replenish its aquifers faster and in greater volumes, will need a huge amount of capital and Forrest is planning to appeal to Chinese investors for investment over several billion dollars. Forrest has ties with various Chinese entities from his 15 years of dealing iron ore, and last year established the ASA 100, a Chinese-Australian agriculture and food safety initiative including participation from COFCO, the Chinese state-owned food processing conglomerate.
Forrest and Minderoo are currently assessing pitches from Australian universities to provide research for the project; some 60 universities pitched and at least 10 are expected to be chosen with at least one from every Australian region. Forrest is also expected to pitch the project to attendees of the Boao Forum for Asia later this week.
Increasingly dramatic global weather systems are encouraging entrepreneurs the world over to come up with technologies to help combat the risk of water shortage, or at least improve water usage efficiency in farming.
One company currently raising capital is SWIIM, a Californian hardware and software company that enables farmers to closely monitor their usage and sell unwanted water rights back into the market. SWIIM is raising $3.5 million in Series A funding through online fundraising platform AgFunder.
In Europe, Hungarian agtech company Water&Soil has created a liquid solution that can be applied to soil to maintain its humidity resulting in more efficient use of available water. The company is seeking investments of $10 million to roll out the product’s distribution globally. “We can save up to 50 percent of irrigated water and extend between one and two times the amount of time that crops can survive without irrigation [such as during drought],” director Richard Vattay told Agri Investor earlier this month.
But as with the rights market, many of these technologies and infrastructure projects are difficult to understand at first glance and require deep research into the behaviour of water and how it can be monitored. Water is also an emotive topic; asset management firms must tread carefully to avoid appearing to take advantage of a crisis in much of the world, an investment consultant told Agri Investor.
Diserio argues, however, that regulating and pricing the resource to its fullest value is the best way to ensure the supply of sustainable long term water and sanitation supply globally. “Water has historically been under-priced relative to its delivered value and it has been taken for granted. If it is priced more appropriately and therefore no longer taken for granted, innovation and efficiency in the system will flourish,” he said.