Trends Watch: Water

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks with Matt Diserio, President, Water Asset Management.

What is your outlook for investing in water?

Water has been an outstanding place to invest to generate market-beating returns and our outlook is even brighter because there is a steady increase in significant capital investment to fix the world’s dilapidated water infrastructure and create more resilient supplies.

Given climate change is a major cause for concern because it is intensifying droughts, floods and wildfires, these factors provide an unprecedented period of transformation and an investment opportunity for water.

The water industry is about climate adaptation as opposed to other industries like renewable energy which exemplify climate mitigation and, unfortunately, climate mitigation does not provide an immediate solution. Mitigating drought, however, offers an immediate solution.

Water companies will continue to thrive and prosper, offering investors the ability to realize capital appreciation as well as sustainable long-term dividend income with relatively low levels of risk and volatility while delivering positive impact.

What areas will present the greatest opportunities and why? 

All the opportunities I previously mentioned are attractive. In order to solve the world’s problems around water quality, you need to fix leaking pipes, you need more meters, more pipes and more treatment providing demand for all those companies that provide those goods and services.  On the PE side, our combination of water rights and implementing regenerative farming greatly reduces the amount of fertilizer used and increases water retention.

What areas will present the greatest challenges and why? 

If you look at the world on a macro level, it’s a rising interest rate environment, higher inflationary environment and we expect a much higher dispersion for stocks; but in the water industry, we are less impacted by these factors. Most water businesses have inflation-protected pricing power and these are businesses you want to own in an inflationary environment. It’s going to be a stock pickers market.

However, with respect to the water industry, demand for water is increasing steadily and supply is becoming more scarce in many places so the water companies we invest in are less dependent on GDP.

Water is essential and also doesn’t have the disruption risk, dislocation risk or technological risk facing so many other established industries.

What keeps you up at night?

Investing in stocks that ensure water supply and water reliability helps me sleep soundly, especially in this new era of certain uncertainty. What both COVID-19 and now Putin’s unilateral and horrific war against Ukraine may be doing is ushering in what we are calling the “self-reliance” trade.

“Self-reliance” is deglobalization on steroids. The countries of the West will spend to become more self- reliant on defense, energy, food and water. 

Supply chain “resiliency” will go to the next level of focus and intensity, from “make it in multiple places where it’s cheap” to “I want to make as much as I can, in my own backyard.” 

As that emphasis grows in investor perception, there is nothing more essential to becoming “self-reliant” than having a safe, reliable, sustainable supply of drinking water.

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.