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January 09, 2010
In water shortages, a stream of profit is seen
Global trends create investment opportunity, says Charlotte's Kingfisher
by Bruce Henderson


The future of water, experts predict, holds increasing shortages, droughts and conflict. Kingfisher Capital, a Charlotte investment advisory firm, sees profits.

Kingfisher, launched last summer, subscribes to what it calls "gravity investing" - exploiting global trends with predictable outcomes. The world's population will grow and crave a higher standard of living, those trends say, swelling cities. Climate will change, oil resources peak and low-carbon energy come of age.
"When you distill it down to a common thread, water is one of them," said Alex Miles, Kingfisher's chief investment officer. "The carbon issue can't be separated from the water issue, or vice versa." Water and energy, the firm believes, will play increasingly large roles in government policies and private investing. The two are linked - power plants suck up vast quantities of cooling water, while treating and pumping water takes lots of electricity.

Kingfisher manages money for individuals and institutions. It was created by a management buyout of Nashville, Tenn.-based WealthTrust's investment business in North Carolina. WealthTrust's Aqueduct hedge fund was among the first to focus on water. Kingfisher hopes to launch a similar fund in the next couple of years. But in addition to traditional services, the firm has already put some of the $350 million it manages into water-focused investments. Among them: water treatment, desalination components, smart-meter technology, engineering-design-construction companies, high-efficiency irrigation technology and agricultural commodities. Water can seem like the perfect investment. It's a finite, indispensable, still-cheap resource that is vital to key industries such as energy and agriculture. Demand will only grow.

The downside?

 Water markets are strictly local, not global. Pumps, pipelines and treatment plants require huge capital investments. And the public doesn't like investor-owned water companies, whose profits are usually capped. "Water would be a great investment," Miles said, "if it weren't a human right."

Mitch Jones, who is a water policy analyst for the Washington, D.C.-based consumer group Food & Water Watch, said some investors are crossing a moral line by investing in for-profit water systems. "There is a place for private capital, and that can be in developing new technologies," he said. "There is not a place when it comes to control or management of water systems whose job it is to provide water for its citizens. That's a job for government."

The answer to looming water crises, Kingfisher says, is to invest in water-dependent commodities like rice and in technologies such as seed varieties and irrigation systems that use less water. Investment breeds innovation, the company says. Miles said Kingfisher "sometimes feel like we're on an island" talking about water investments.

Few of the world's largest money managers are analyzing the risks and opportunities of climate change, which is expected to worsen water shortages, said a report this week. The analysis came from Ceres, a Boston group that urges investors to address sustainability issues. But small investors are beginning to discover the "low-hanging fruit" of water-related securities, said Matt Moscardi, the group's manager of investor programs.

Corporations are also starting to invest in more efficient use of water. Miles spoke at a "corporate water footprinting" conference last month in San Francisco that also drew speakers from PepsiCo, Patagonia, Nestlé and Intel.

"Businesses won't listen if you tell them it's just the right thing to do," Moscardi said. "They will listen if you can show them that it adds value."