The Horinko Group presents a unique webcast by Steve Hoffmann examining the current state of water investing and the fundamental investment drivers going forward. The webcast reviews the widely stated rationale for investing in water, the framework that has developed to implement water investment strategies, and the inherent disconnects that have emerged. Hoffmann’s discussion of water market drivers goes beyond the traditional talking points associated with a “thematic” investment strategy and presents a renewed case for investing in water.
The rationale for investing in water has proven difficult to translate into an investment strategy. The reasons are complex because water itself is complicated. From a policy perspective, there is a disconnect between the institutionalized management of a resource governed by what is arguably the planet’s most valuable biogeochemical cycle and the obvious supply-demand attributes of water as an economic commodity. From an investment perspective, water does not fit neatly into the asset allocation decision and the readily available investment vehicles have outlasted their effectiveness as a proxy for growth.
Water is in the early stages of a major shift in global socioeconomic status. Water has characteristics of a resource, a public good, and an economic commodity; it can be considered ubiquitous globally, but scarce locally; it is renewable, but can be depletable; it has no substitutes, but can be recycled; it is an economic input, as well as a prerequisite for life and well-being; and while access to healthy drinking water is regarded as a human right, water can also be privately-owned and transferred as a legal property right.
Not only is this mix confounding ecologically, but it also forces the application of disparate and unwieldy economic principles that are called upon to determine the proper role of market mechanisms in advancing sustainable resource solutions. As a result, Hoffmann believes that water investors are neglecting the strategic importance of more nuanced water market drivers such as the institutional economics of water and the rationalization of the global water business.
The webcast details the transitioning institutional structure of water governance and seeks to demonstrate the benefits associated with the emerging application of institutional economics to water resource sustainability policies. Further, the strategic leverage associated with the rationalization of an ultra-fragmented and extremely diverse water business into a global water industry represents a powerful driver. These factors are seen as adding significant value to a long-term investment in water. Hoffmann’s discussion then focuses on extending this rationale into a realistic water investment strategy by identifying sector specific activities that embrace forward-looking water factors.
Steve Hoffmann is the Founder and Managing Director of WaterTech Capital LLC, an investment and advisory firm focused exclusively on the global water business. He also serves as Senior Advisor, Water Sector Sustainability and Investment for The Horinko Group. Mr. Hoffmann was one of the earliest financiers to recognize the potential of water as an investment strategy and has experienced the transformation of the water business over his thirty years of academic, professional, and investment activity. As co-founder and Managing Director of Palisades Water Index Associates, he pioneered the development of the first water sector indexes to be tracked by thematic Exchange Traded Funds (ETFs). Hoffmann is an active member of the Water Environment Federation and the American Water Works Association. He was contributing editor to U.S. Water News’ Water Investment Newsletter for fifteen years and is the author of Planet Water: Investing in the World’s Most Valuable Resource.
Key Insights Shared
- Water is a sector with extremely positive long-term investment fundamentals, but there is a disconnect between the thematic rationale that guides current water investment strategies and the actual dynamics catalyzing the global water business.
- The fundamental market drivers extend beyond a traditional supply and demand analysis to include institutional factors associated with the changing socioeconomic status of water and the strategic importance of water industry rationalization.
- At this juncture, water investment strategies should target specific water business activities rather than broadly defined asset class considerations.
- The framework for an enhanced investment approach is presented based on optimizing exposure to the strategic factors that will shape the economics of the global water business.
The webcast is intended for investors who view water as an important portfolio component, but seek a more comprehensive socioeconomic rationale for allocating funds to the sector. The discussion is of importance to fund/asset managers, wealth advisors, ESG/Impact investors, university endowments, pensions, foundations, private equity groups, and water industry participants.