Monday, December 30, 2019

Trying to Make a Buck Off Water Investments

Water is tough.
Here's our introduction to 2014's "A Look at the World's First Water-focused Hedge Fund"
Since the first Earth Day in April 1970 and more importantly since the establishment of the EPA in December of that year, folks have been trying to make money out of water in the U.S..
Put simply, the returns have not been market-beating.

Because so much of the opportunity was my-little-crony stuff, at the whim of politicians, there was no consistency of growth at a time when other portfolio investments offered very competitive comparisons.
The alternative was to own the cash flow, private equity style, but unless one felt a passion for grit chambers and sludge pans it was pretty pedestrian, utility type ROI.

In fact the most reliable water investment in the U.S. has probably been York Water Company of York PA.
They've been paying dividends for 199 consecutive years and just announced their 575th divi.
The announcement carries the boilerplate "This release contains forward-looking statements".
And today's story from Nanalyze:

11 Smart Water Technology Startups for Smart Cities
About one in three people on the planet currently lack access to safe drinking water, according to the World Health Organization. You might recall that Cape Town nearly ran out of fresh water last year, and cities from Tokyo to London could also face water shortages in the next few decades. You’re probably thinking that the United States is immune to these sorts of problems. Wrong: America doesn’t even crack the top 20 countries with the cleanest tap water, as about a fifth of the U.S. population has been exposed to unsafe H2O at some point. Remember Flint, Michigan? Plenty of other U.S. cities are at risk of running out of drinking water in the future. Ironically, the impending humanitarian crisis offers buckets of investment opportunities in water technology, including desalination and infrastructure.

Most recently, we covered a publicly traded smart water technology company called Xylem (XYL) that’s infusing machine learning into sensor technology for automating water management systems. In that article, we also introduced you to a couple of smart water tech startups similar to Xylem that had been featured in a market map created by the big brains at data research firm CB Insights:
Credit: CB Insights
As you can see, there are a ton of other water tech startups under the water management category. Out of that list, we’ve covered Wexus, an IoT agtech company whose utility savings solution is increasingly being used in the cannabis industry, and Rachio, which offers products in smart home water irrigation. That still leaves us 11 water tech startups that are developing IoT solutions to help smart cities be smarter about how they manage their H20 supplies, from reservoir to stormwater. (A twelfth company that was developing technology for rapidly detecting waterborne pathogens, Safe-H2O, appears to be defunct, as its website appears broken. Alert readers, let us know if there’s a different story.)
Let’s dive in.

AI and IoT for Smart Water Management
Click for company websiteSmart water technology has largely come to represent a merger between IoT and artificial intelligence, where connected sensors and other devices supply data for algorithms that perform near real-time analytics to manage H20 systems more efficiently, as well as detect leaks and perform other automated tasks. Founded in 2011, Austin-based Banyan Water has raised about $4.4 million over four rounds for its analytics engine that provides insight into water costs, use, trends, and anomalies for clients in industries ranging from Fortune 500 companies to school campuses. It offers four solutions:
Services offered by Banyan Water
Credit: Banyan Water
For instance, Hewlett Packard (HPE) employed Banyan’s Irrigation Insight solution to juggle irrigation water management from three different sources. The system prioritizes low-cost recycled water first before opting for the Perrier from the city of Palo Alto. Since 2017, HP has saved more than three million gallons of irrigation water on its Palo Alto campus, a 42% reduction compared to prior usage. Banyan’s system also detected more than 20 leaks, preventing millions of gallons of additional water waste.
Click for company websiteThere’s plenty of competition in this segment of the smart water tech industry. There’s Smart Energy Water, a Los Angeles area startup founded in 2012 that claims to use machine learning to optimize both water and energy operations for smart cities. It offers products for both consumers and employees. The latter, for instance, helps workers in the field to manage scheduling and reporting tasks on a mobile platform.
Click for company websiteFounded in 2017, Ontario-based Emagin is another company that has developed an AI platform for optimizing water management, specializing in utilities, food and beverage, pulp and paper, and chemical production plants, among others. However, it was just acquired this month by a Los Angeles area company called Innovyze that has a long list of products and services around smart water technology. Innovyze itself was absorbed in 2017 by a Swedish private equity firm for $270 million.
Seattle based FlowWorks, founded in 2010, goes beyond smart water management, essentially offering a full range of environmental monitoring capabilities, with machine learning gazing into the crystal ball of predictive analytics. FlowWorks isn’t picky with its data sources, slurping up insights from satellites, weather forecasts, and public datasets from agencies like USGS and NOAA.
Sources of data for FlowWorks platform.
Credit: FlowWorks
For example, a coastal city like Richmond in the San Francisco Bay area, is interested in tracking tidal movements to manage its water infrastructure more efficiently....

Previously in H2OhOh:
Aug. 2012
It's So Hard to Find a Decent Bet on Water (investment vehicles)
Update below.
Original post:
Water has confounded smarter people than me.

Enron's adventure in H2O is a cautionary tale, they bought Wessex Water in England, bought water concessions in Argentina and had a long term contract in Cancun.
Enron partially spun out the water sub, Azurix at $19.00. Within 18 months it was trading at $3.50 where Enron tendered for the 34% of the company that the public owned.

Not a very sweet deal for anyone involved. Water is tough business.
And, of course, Enron being Enron, they bid 100% more than any one else in the business to get the Argentina deal to have some big pre-IPO news. 
From FT Alphaville:
In search of liquid water (investment vehicles)
This guest post was submitted by Jason Abbruzzese of
A little more than a year ago, Citi chief economist Willem Buiter said water was on its way to becoming “the single most important physical-commodity based asset class, dwarfing oil, copper, agricultural commodities and precious metals”.
While we’re not quite there yet...MORE
May 2013
Swiss Private Bank Pictet Making Money in the Water Biz (XYL; DHR)
July 2013
"Can Powdered Water Cure Droughts?"
October 2010
Muni's: "Water Scarcity a Bond Risk, Study Warns"
April 2015
A Look At A Second Water Focused Hedge Fund

From Barron's:

Water Asset Management: Hunting Liquid Assets
Water Asset Management managers Disque Deane Jr., Matt Diserio, and Marc Robert are betting that water prices will float higher still.
Water wasn’t an obvious investment theme when Matt Diserio and Disque Deane Jr. launched their hedge fund 10 years ago. Now, every day brings news of a water shortage or drought. So have the water stocks targeted by their Manhattan-based Water Asset Management enjoyed a panicky rerating?

Not yet. Drought-parched headlines still get upstaged by the latest dot-com initial public offering, so water remains mispriced by consumers and investors. That’s good for the half-billion dollars that Water Asset has in an equity hedge fund and a newer long-only fund focused on regulated water services, water resources, and the suppliers of pipes, meters, and treatment technologies. Upside remains.

“It is an old industry,” says Diserio, who manages the firm’s stock portfolio, “but it is just becoming a recognized asset class.”

Water investing’s upside is ensured by the urgency of our water needs and the fact that this resource remains very cheap in an absolute sense—compared with natural resources like timber or farmland, oil or gold. The average American family’s water bill is under $40 a month, notes Deane, giving the industry room to charge more to cover hundreds of billions of dollars in deferred maintenance and upgrading....MORE
There are many more, use the 'search blog' box if interested.