Tapping into Water Investment Strategies

Tapping into Water Investment Strategies

William Brennan, managing director with Ultra Capital, presented ‘Water 2.0: the next generation in sustainable water’ at the forum, which was held at the Fairmont Southampton last week.

AAEAAQAAAAAAAAPPAAAAJDQ0YjcyZTA0LTA0OTQtNDRlOS04NDFmLTQxY2JjNmY3YjA2MQ.png“People are looking at substitutes for fixed income and where they can go to get stabilised yield,” said Mr Brennan.

Describing his company, he said: “We can put together asset vehicles and get a 15 per cent ROR [return on risk] and have a 12 per cent stabilised yield post-construction once these things start their cash flow.

“We are talking about anaerobic digestion, water reuse, vertical farming; technology that has been proven, deployed and is already in the mainstream in other parts of the world, but maybe in American and the islands, not so much.”

Bill.pngMr Brennan explained that Ultra Capital provides financial products to institutional communities that allow them to invest in sustainable product finance in water, energy and waste.

“We do it with small and mid-sized products, with developers who are looking to do so in repeatable, standardised scaled fashion.”

He highlighted compelling arguments for investing in companies engaged in managing water resources.

“The investment community estimates that more than $22 trillion will be needed to fully modernise global water systems over the next 20 years.”

Depending on geographical area, fresh water can be plentiful, physically scarce or economically scarce. For example, California has been forced to impose water usage restrictions for a number of years, and is searching for new supplies.

Regarding water equities, he mentioned his late colleague, John Dickerson, of Summit Global Management, who said he was the first person who saw the opportunity to invest in water utilities as a class, and also invest in associated industrials that fed off the water utilities.

“He didn’t look at anything outside of that. What he did was build an ecosystem around that, and he said ‘Who are all the suppliers to the publicly traded water systems?’

“Back then, there were 25 publicly traded water utilities in the US. Today there are only nine.”

Of the remaining nine, some have the best returns of any publicly traded stocks over the last ten or 20 years, according to Mr Brennan.

“Why? Consistent customer base — they have been able to increase their rates [and have a] nice yield. During this past 18 months there has been a surge of people back into water utilities again, where they are getting paid 3 per cent on stock that had a 15 per cent growth,” he said.

“I’ve been in the water investment business over the last 16 years. We’ve seen rate increases go from 4 or 5% to more than 15— and they are going higher because the age of the infrastructure has crossed that chasm, so there will be an acceleration of capital just to keep these operations up.”

Focusing on investment opportunities, he said green bonds are an emerging asset class with fixed income proceeds. Green bonds cover the renewable energy spectrum, but the ones specifically linked to the water business tripled in size between 2007 and 2014.

“We’ve broken the $10 billion barrier spent exclusively on water. It’s become one of the most popular green bonds after renewable and energy efficiencies, and eventually we will see water overtake those areas.”

He said the bonds were a useful way for US municipalities to raise money to plug gaps in existing water infrastructure.

Mr Brennan urged delegates to keep an eye on the value of water.

“The projects we have spoken about are bringing 15 to 20 per cent returns with a high yield,” he said, adding that he believes in coming years insurance companies, reassured by the success of the projects, will get involved with long-term investments. 

Source: The Royal Gazette