Investment Thesis

 

The investment team believes that powerful, non-cyclical drivers underlie the potential for water equities to outperform the general markets over the long-term, on a risk-adjusted basis. Global demand for water is increasing exponentially, while water quantity and quality are diminishing. Piper Hill believes that this worsening supply/demand imbalance is supportive of the long-term appreciation of select water equities and for the water industry in general. Piper Hill foresees increasing demand for the products and services of select water equities for the foreseeable future. A robust universe of global water stocks make up the opportunity set.  The macro case for investing in global water equities relates to the increasing scarcity and consistent demand for the product common to each of these companies, water.

 

 

Water is a finite resource which is becoming increasingly scarce as a result of the pressures of increasing demand, decreasing supplies and decreasing quality. Exponential population growth drives increased demand for food, which increasingly magnifies water stress globally. Migratory patterns are tending toward regions with scarce water resources. Global water infrastructure is in bad need of repair, with the US alone needing upwards of $225 billion. These are just a few of the powerful non-cyclical drivers of the opportunity in global water equities.

 

Water, a finite resource

 

Water is a vital necessity of life and human activity, with no economic substitute at any price.  Without a constant uninterrupted flow of water, everything quickly comes to a halt.  Water is in constant movement, as described by the water cycle or hydrological cycle and exists in three states, liquid, solid gas.  In effect, water is constantly being recycled.

 

 

The majority of the Earth’s water, or 97%, is salt water, and less than 1% is readily accessible for human use.  The fundamental problem is that the quantity and quality of this finite supply is decreasing while demand for water is exploding, driven primarily by emerging markets.

 

The global population reached 1 billion in the year 1800, then doubled to 2 billion in 1950 and it currently stands at 7 billion, headed to 9 billion by 2050.  Competition between users of water will likely intensify over time.  Stress on current resources is increasing at an unsustainable rate; by 2030 demand is predicted to exceed water supplies by 40% driven primarily by agricultural water use.  Food provision is closely linked to the water challenge.

 

 

This gap between supply and demand will be closed; the question is how, and at what human cost. We believe that this increasing supply/demand imbalance, coupled with massive water infrastructure spending needs globally, undervalued water prices, growth in emerging markets, and increasingly water quality standards underlies the long-term prospects for the water industry.  We believe that select water equities will be part of the solution and consequentially will be primary beneficiaries of these powerful trends.

 

 

 

 

Lack of access to clean water and sanitation

 

884 million people lack access to safe water supplies, approximately one in eight people, mostly located in developing countries.  Approximately 3,575 million people die each year from water-related diseases. Over 2.5 billion people or 38% of the global population lack access to improved sanitation.  More people have access to a cell phone than a toilet.  Over 80% of sewage in developing countries is discharged untreated.  Access to safe water is a human right (UNDP, 2006).

 

• Every 20 seconds, a child dies from a water-related disease.

• Nearly one in five child deaths (1.5 million) are due to diarrhea, which kills more children than AIDS, malaria and measles combined.  Diarrhea is caused primarily by caused by unsafe water.

• Investment in safe drinking water and sanitation contributes to economic growth.  According to the World Health Organization, each $1 invested yields returns of $3 to $34

 

Water is the lifeblood that sustains our society and economy.  One of the central forces in history is how societies respond to water related challenges.  Never has society faced water challenges of such magnitude as those that lie before us.   We believe investors with sufficient foresight and patience can seize this historic opportunity to transform this immense societal challenge into an unparalleled opportunity, while creating positive impact beyond returns.  We believe that select water equities will be primary beneficiaries of an unquenchable and growing global thirst for this limited resource.