Remarkable Innovation

Not long ago, I went to see Jim Rogers (the renowned investor and paronomasiac author of “Investment Biker” and “Adventure Capitalist”) speak. He was quick to point out the investment opportunity that will transpire as demand and evolving need, particularly in developing nations, drives huge growth in the water industry over the next decade.

I mention this by way of introduction to a couple of posts on the event that I attended this week: the Singapore International Water Week conference and exhibition.

Two of the most fascinating talks at the event were not in the conference itself, but at the North American Business Forum held in parallel with the exhibition, where John Batten, Chair of the American Water Works Association International Council, gave an overview of the industry, and was followed by David Henderson, Managing Partner of XPV Capital Corporation, who gave an excellent talk on trends in water investments.

There was a whole range of useful insight in both talks, so I’ll split the summary across two posts – starting off with John Batten’s fascinating overview of the US water market:

A lot of attention in water investment is being directed at emerging nations, but John Batten made a compelling case for the opportunities that sit in the already mature North American market. He listed the “Top Ten Trends” that are occurring in the sector, many of which proffer great opportunity for technology investors.

First of all, he cited a number of different factors related to population trends: a substantial cold-to-warm-climate migration that is re-distributing the population density, an aging populace consuming more pharmaceuticals that eventually find their way into the water supply, and increasing immigration coupled with healthy birth rates sustaining population growth.

Secondly, political factors: non-governmental organisations in the US exert substantial pressure to ensure that water suppliers meet stringent product quality standards, while strong political will exists to increase the “value of water” up to the cost of delivering it.

All of this presents new and unprecendented challenges for water suppliers that they are turning to technology to address, a point that John covered in detail. He spoke of the evolution from corrective to predictive maintenance that is driving demand for advanced technology – both software and hardware – that can save long term maintenance costs by anticipating failures before they happen. There is substantial opportunity for innovative companies with new technology to present a compelling “cost-efficiency” case to customers.

John covered a number of other factors, including touching relatively briefly on energy evolution and the governmental desire to reduce dependence on offshore energy sources, which he says has increased the linkage between energy generation and water consumption to an “all time high”. This is an interesting trend, and it would have been nice to hear a bit more detail on it, but unfortunately time constraints took us quickly onto another topic: the economic downturn.

John cited some negative effects of the recession (compliance endeavours being inadequately funded, capital projects delayed etc.), but also pointed out some positive trends such as the utility companies with capital reserves taking advantage of low building costs to create new facilities.

He cited the governmental economic stimulus package, and its impact on the industry in the form of US$6billion that has been allocated for water quality, wastewater and infrastructure projects. And that’s the tip of a very large iceberg when it comes to imminent governmental influence. John gave a number of examples of the legislative priorities that will divert money and political attention to the sector: the Water Quality Investment Act that will designate US$18.5billion for wastewater infrastructure, climate change legislation that will impact the renewable energy sector, reauthorisation of the Highway Bill that will impact storm water management, and the Water Infrastructure Financing Act that will allocate $39b for waste and drinking water over 5 years.

A fascinating overview of an opportunity-filled landscape, which the next speaker David Henderson, Managing Director of XVP Capital Corporation, enunciated perfectly. Stay tuned for our next post with more detail on that talk…

UPDATE: The second part of this post is now online.

This entry was posted on Wednesday, June 24th, 2009 at 6:44 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.