Investing in Water Security: What Investors Need to Know

“Water security is the most important item on the agenda of every humanitarian and international institution in the world,” states Thomas Schumann, of Thomas Schumann Capital LLC, the manager of a water security fund which advances global water security and pursues long-term capital appreciation. However, for all of the attention that humanitarian and international institutions pay to water security, this market has been overlooked by investors in recent years. Schumann is setting out to change this by educating one investor at a time.
The Investing News Network sat down with Schumann to determine why exactly water is such a good bet for long-term investors. And so, for those of you thirsty to learn more, read on to hear his expert perspective on today’s water security market.

Water risk today

Schumann explains that the forces of exponential population growth, climate change, enormous demand and unsophisticated conservation efforts had led to a very real “imminent threat called water risk.” Essentially, the case breaks down so simply that any one of us could have recognized the problem, had we bothered to look closely at the state of our water.
Because fresh water has no substitute, and only a small percentage of the earth’s water supply is safe for consumption, and because demand for fresh water is accelerating rapidly (due in part because of the massive urbanization of developing nations and a growing world population), the need for water is growing significantly. There are a wide area of investments required to solve this global crisis and respond for the demand for fresh oil. That’s why some industry watchers believe that water will soon be viewed as a core commodity, with the profits to match.

Market size

“Water is currently a $500 billion global industry that could grow to as much as $1 trillion by 2020,” states Schumann. It goes without saying, then, that this is one industry that investors should keep their eyes on. Investment is needed along the entire water value chain, explains Schumann. And global water projects alone are expected to see annual growth of 5- to 8-percent. All told, “companies that focus on addressing the increasing demand for water represent some of the world’s key growth opportunities today… and in the coming years.”
Schumann sees water risk as a key opportunity for investors and humanitarians. As some experts “tout water as the new gold,” Schumann sees investment opportunities that meet and exceed those presented by traditional gold investing. He explains, “it’s not the physical water that should be traded and owned by third parties, since it is a public good. Instead, it’s important to invest in the necessary infrastructure and technology to maintain high quality water.” With one person dying every six seconds due to water contamination, it’s a market that needs immediate consideration and rapid investment.

Regional outlook

China is a great example of these investment efforts. With around 80 percent of their water supply polluted, officials and industry experts have “taken drastic measures to protect their water and their economy.” While China is notable for its “rigour,” other countries are also expressing a keen interest in water security.
In 2016, the US hosted its first ever water summit, suggesting that they too are beginning to look at water security seriously. Water is a key element on their balance sheet, as the country begins to “redirect capital into projects and technologies to ensure water security.” The nation has a $1 trillion financing gap to upgrade their infrastructure – a necessary project, when you think of the hundreds of thousands of US residents don’t have direct access to clean drinking water.
All told, water security is a problem affecting the entire globe. For the past three years, the World Economic Form has identifies water as the most important item in their agenda. Therefore, from China to the US, governments, organizations and companies across the world are unified in their focus on water security.

Investor uptake

Because of limited supply and growing demand, the world water market appears to be in a sweet sport for investors. Here, Schumann cites Willem Buiter, the Global Chief Economist at Citigroup, who stated:

I expect to see a globally integrated market for fresh water within 25 to 30 years. Once the spots for water are integrated, futures markets and other derivative water-based financial instruments […] both exchange-traded and OTC will follow. . . Water as an asset class will, in my view, become eventually the single most important physical-commodity based asset class, dwarfing oil, copper, agricultural commodities and precious metals.’

Today, the only surprising part of Buiter’s statement is how quickly this has come to fruition. The water market is largely about infrastructure projects, information plans and the like. This means that it has “low volatility and low risk.” However, it’s also a long term game. With ten, twenty and thirty year agreements in place, “you need to take a very long term perspective” when it comes to water investing.
For Schumann, it’s all worth it. The sector is replete with opportunities and investors will profit significantly from this long-term game. More importantly, however, is the real world impact from this investment. Stay tuned to learn more about water investing from Schumann, when we get into the specific paths to investing in this robust, dynamic and deeply compelling industry.
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Securities Disclosure: I, Morag McGreevey, hold no direct investment interest in any company mentioned in this article.