Water as the Ultimate Liquid Investment

Peter Klein is the chief investment officer and founder of ALINE Wealth, a wealth-management firm for foundations, endowments and business owners. 

Klein specializes in socially responsible investing with a focus on investing in water and he's earned the Chartered SRI Counselor designation as part of a commitment to helping clients navigate responsible investing. He also focuses on philanthropic planning and helping clients navigate family trusts, institutions and nonprofits. 

Klien is the author of the book, “A Passion for Giving,” which outlines tools and inspiration for creating a charitable foundation.   

Jeff Benjamin: What’s the investment case for water? 

Peter Klein: The economic conditions for water are compelling. It is a resource that has diminishing supplies, which has been exacerbated in the past decade and will continue to worsen due to climate change. Additionally, there is a growing demand for water, primarily driven by population growth and urbanization. Since there are no substitutes for water, the demand for it is inelastic, making it a highly desirable resource. 

Compounding the issue, American infrastructure has been failing for decades and will require billions in investments to fix items such as dams, pipes and waterways. The winners in this climate crisis will be those companies working in the water sector, which are few due to the huge barriers to entry. As such, these companies could experience growth and therefore make good long-term investments. 

JB: How do you invest in water? 

PK: Water exposure can be achieved through a series of carefully chosen equity investments, such as stocks, as well as funds and even ETFs of indices that focus on water. Additionally, for sophisticated long-term investors, there are private-equity and venture-capital funds specifically dedicated to the water sector. These funds focus on either innovation or impact investing, where the objective is to achieve both financial returns and social good. 

We search the investment universe for companies in the water sector. This includes utilities that supply and deliver water to homes and businesses, as well as a wide range of infrastructure-based companies such as those involved in pipes, pumps, valves and more. 

We are also looking for pioneers who are focused on digital solutions for metering and desalination. What we find in this diverse sector are many well-run, focused and environmentally savvy enterprises that are dedicated to one of the globe's most precious resources.    

JB: No pun intended, but is water a liquid investment? 

PK: Investing in water can in fact be a liquid investment. However, illiquidity, and therefore more risk, is present for investors who venture into private equity or venture-capital limited partnerships.  

JB: What can you tell us about the upside potential and downside risks? 

PK: The potential upside is substantial when one considers the fact that every living thing needs water. A sizable segment of businesses require water as well. And we only have so much of this precious resource. Add to that the fact that the resource is dissipating as the globe heats up at the very same time that populations rise and increase demand. 

So, while the setup is grim, the few players in space, those companies focused on water, stand to benefit from it. We cannot replace water with milk. No matter the cost, we will have to pay up. If our investment thesis is correct, then those who invest in the sector will see growth in their portfolio. 

JB: Would this be considered an ESG strategy? 

PK: Investing in water is undoubtedly an ESG strategy. In fact, one could argue that it is one of the best ESG strategies as it is required by all living things. Water is the essence of sustainability. It is a scarce natural resource that we all need. In the 2030 Agenda for Sustainable Development, the United Nations outlined 17 Sustainable Development Goals to secure the future of our planet. Investing in water touches upon five of these goals: water and sanitation, ending poverty, good health and well-being, economic growth and climate change.  

The investment case for water is of course made using the economic framework. However, increased investment in the sector will also help address the water insecurity faced across the world. These investments could mean better infrastructure in cities, access to cleaner drinking water, and simply put more sustainable use of this precious resource so that we may help generations to come. 

-- Jeff Benjamin

Contact Jeff Benjamin at [email protected] and connect with him on Twitter @BenjiWriter