Asset management professionals considering where next to seek investment yield and growth were pointed towards water at the Global Fund Forum in Bermuda.

And not only through obvious investment routes, such as a stake in water utility companies, but going deeper and backing advanced projects that promote sustainable use and reuse of water.

William Brennan, managing director with Ultra Capital, presented ‘Water 2.0: the next generation in sustainable water’ at the forum, which was held at the Fairmont Southampton last week.

“People are looking at substitutes for fixed income and where they can go to get stabilised yield,” said Mr Brennan.

Describing his company, he said: “We can put together asset vehicles and get a 15 per cent ROR [return on risk] and have a 12 per cent stabilised yield post-construction once these things start their cash flow.

“We are talking about anaerobic digestion, water reuse, vertical farming; technology that has been proven, deployed and is already in the mainstream in other parts of the world, but maybe in American and the islands, not so much.”

Mr Brennan explained that Ultra Capital provides financial products to institutional communities that allow them to invest in sustainable product finance in water, energy and waste.

“We do it with small and mid-sized products, with developers who are looking to do so in repeatable, standardised scaled fashion.”

He highlighted compelling arguments for investing in companies engaged in managing water resources.

“Since 1989, water prices have risen faster than oil with minimum volatility.

“The investment community estimates that more than $22 trillion will be needed to fully modernise global water systems over the next 20 years.”

Depending on geographical area, fresh water can be plentiful, physically scarce or economically scarce. For example, California has been forced to impose water usage restrictions for a number of years, and is searching for new supplies.

Climate fluctuations and deteriorating water infrastructure are further factors that impact the availability and cost of water supplies.

Mr Brennan said corporations need to look at what they are doing to effectively and efficiently manage their water resources, such as how much water they use and whether they can reuse some of it for another application in the manufacturing process.

“There are new avenues for investors that are outside the mainstream of traditional water projects.”

He highlighted anaerobic digestion, a process that takes organic solid waste and puts it through mechanical sumps with enzymes, ending up with electricity or biofuel, high-end nutrients that can be used as fertiliser and recycled water.

Mr Brennan said the largest digester in the US generates an acre of water every day in Colorado, equivalent to about 350,000 gallons of water.

Regarding water equities, he mentioned his late colleague, John Dickerson, of Summit Global Management, who said he was the first person who saw the opportunity to invest in water utilities as a class, and also invest in associated industrials that fed off the water utilities.

“He didn’t look at anything outside of that. What he did was build an ecosystem around that, and he said ‘Who are all the suppliers to the publicly traded water systems?’

“Back then, there were 25 publicly traded water utilities in the US. Today there are only nine.”

Of the remaining nine, some have the best returns of any publicly traded stocks over the last ten or 20 years, according to Mr Brennan.

“Why? Consistent customer base — they have been able to increase their rates [and have a] nice yield. During this past 18 months there has been a surge of people back into water utilities again, where they are getting paid 3 per cent on stock that had a 15 per cent growth,” he said.

“I’ve been in the water investment business over the last 16 years. We’ve seen rate increases go from 4 or 5 per cent to more than 15 per cent — and they are going higher because the age of the infrastructure has crossed that chasm, so there will be an acceleration of capital just to keep these operations up.”

Focusing on investment opportunities, he said green bonds are an emerging asset class with fixed income proceeds. Green bonds cover the renewable energy spectrum, but the ones specifically linked to the water business tripled in size between 2007 and 2014.

“We’ve broken the $10 billion barrier spent exclusively on water. It’s become one of the most popular green bonds after renewable and energy efficiencies, and eventually we will see water overtake those areas.”

He said the bonds were a useful way for US municipalities to raise money to plug gaps in existing water infrastructure.

“The American Water Works Association says the cost of repairing just the drinking water [infrastructure] is going to top $1 trillion in the next 25 years.”

Another avenue for investment is project finance, such as investing in solutions to address storm water flooding and water reuse.

“Funding these smaller projects on a private basis has changed the landscape in how investors are looking at opportunities,” said Mr Brennan.

He spoke about adaptive ecology work being done at Emory University, in Atlanta, where “natural means” are being used to clean water, the water treatment footprint is being reduced in size, water usage is being reduced, discharged water is being reduced.

With a scalable operating system that does all that, it is possible to approach universities, corporate campuses, healthcare facilities, and other organisations to invite them to install greener, efficient technologies.

Mr Brennan said: “You say ‘Look, here’s your water usage, these are your bills. We can come in, no money out of your pocket, this is not a capital expenditure, it is an operating expense. We’ll share the savings with you.’”

He added: “There are 43 universities that have signed up for this specific project, with this developer over the next seven years. They are doing it in unison with other capital improvement programmes at universities.

“Once this system goes in, it redirects all that waste water that would normally be discharged into the sewer system; now it is used for toilets, laboratories, irrigation, all the non-potable uses of water that typically were done with potable water.”

Mr Brennan said it was not only universities who have taken an interest.

“We’re seen several Fortune 50 companies and well-known healthcare facilities say ‘This is going to be a pressing issue for us. How do we build a reserve water component to our daily operation, and also reduce our costs?’”

Mr Brennan urged delegates to keep an eye on the value of water.

“The projects we have spoken about are bringing 15 to 20 per cent returns with a high yield,” he said, adding that he believes in coming years insurance companies, reassured by the success of the projects, will get involved with long-term investments.